The fall of the hammer is dreadful. An encounter with an auctioneer is the most frightening experience for an investor, not just because of the humiliation, but the thought of losing property to an indifferent executor of orders is traumatising.
However, Sacco leaders have maintained that despite auctioneers having a place in Saccos, they should be used as a last resort to recover any non-performing loans from members.
A number of Sacco leaders who spoke to Sacco Review most recently on whether there is still a place for auctioneers said it is extremely rare to see a Sacco use auctioneers to recover loans; unlike banks which shortly come for your property even as early as a three-month default.
Mufate G’ Sacco Chief Executive Officer (CEO) Anthony Vidinyu is of the view that Saccos can engage auctioneers if all means of recovery have been exhausted; and only when a loanee had pledged a security.
“Maybe, there are a number of loans that are in arrears, and the loanee has totally refused to pay off that particular loan. Once in a while, we engage the auctioneers. As I speak, I have never engaged one,” said Bitinyu.
According to him, Saccos should avoid taking this route because Saccos are member-based, and the moment the hammer falls, alarm bells will be rang loud to jeopardize the reputation of the Sacco.
For members who have not listed securities but have used their fellow members as guarantors, Bitinyu states that auctioneers cannot be used to recover the loans.
“We cannot use auctioneers to recover the loan. That was a mutual understanding between the loanee and the guarantors. The only thing you can do is inform the guarantors and give them a notice, from whom the law allows us to deduct,” he said.
Shoppers Sacco CEO Protus Senda echoed the same, adding that it depends on the Sacco itself since there are very many ways of recovering a loan.
Senda notes that it happens in cases where a member had secured the loan on a property and gave express instructions or permission to sell it when they default.
“When the member gives those instructions, we do not sell it directly but engage auctioneers as per law,” said Senda.
Nevertheless, he says Saccos have reservations because it is a long costly process, preferring rather to negotiate with the loanee.
His sentiments are supported by the Kenya Highland Sacco CEO Alice Kosgei, who said auctioneers are only used on notorious loan defaulters, and most likely when guarantors have given them the go-ahead.
“It is the last option after we have pursued them to pay and given them time. Instead of going to court, whose processes are tedious and long, we use auctioneers,” said Kosgei.
But then again, she says, the guarantors will guide as there are those who are honest but are unable to pay. Auctioning is on a case-by-case basis.
Ufanisi DT Sacco CEO CPA Fredrick Abuyabo said where there is a collateral sanctioned by their by-laws, the money can be recovered through auction. However, it should be in tandem with other relevant laws like land Act, survey, among others.
“However, the guarantors whose deposits were attached by the Sacco have a right to take auctioneers to the loaner after following legal processes of demanding attached deposits from the loanee and the letters attaching them are evidence,” he added.
Last year, there was a draft bill that perhaps could have compelled Saccos to share information with Credit Reference Bureaus (CRBs).
The Sacco Societies (Amendment) Bill wanted to align the Sacco Societies Act 2008 with the Banking Act and the Microfinance Act 2006, bringing credit information sharing under a single regulatory framework; the CRB.
Currently, Saccos are obligated to share positive credit information among them but only share data with CRBs under the third parties category.
The Bill mandated Saccos to share both positive and negative information of their customers with licensed CRBs, which would require Saccos to issue pre and post-listing notices to their customers.
“A Sacco society shall, in the ordinary course of business, exchange information on performing and non-performing loans as may be specified by the authority and to such extent as may be prescribed through regulations made under the Act,” says the Bill.
The rate of loan defaulting in Saccos is increasing, which is largely attributed to opening up of common bonds by Saccos.
A common bond is where a Sacco recruits members outside its jurisdiction. It occurs, for instance, when a Sacco affiliated to teachers opens its doors to people outside the teaching profession.
Recruiting members from outside their catchment area arose as part of the strategy to primarily drive the much needed growth.
This saw many societies doubling or tripling their membership, thus reporting growth across key market segments, yet with the attendant risk of increasing the number of loan defaulters. The proposed Sacco Bill was expected to seal the loopholes.
While members think that it’s their right to take credit, mostly three times of their savings, repaying especially by the business community is never a walk in the park.
The check-off system is enough collateral. In its absence as it were with the business community, repaying is a gigantic task.
By Roy Hezron
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