DEBT BURDEN : The toxic debt burden in our system

Kigali is under pressure, nobody is paying anymore. Most businesses are owed money by their defaulting clients. The excuses are always the same “the payment was approved, I am just waiting for them to sign it.” Or, “Even I am waiting for the money, just this other guy won’t release the money.” Kigali has always had this but now it has ground business to a crawl. The problem is that our banks are hearing the same excuses from defaulters, “I am getting a very big cheque at the end of the month, give me some time.” When we look at our banking system we do not have the auxiliary sectors that do most of the dirty work in banking. Like debt collection agencies, bailiffs, credit rating agencies, asset-strippers, administrators, receivers, bounty hunters, and many other services that make banking work. Debt should be able to be bought and sold, the banks should be allowed to sell defaulted debt to debt collection agencies. Businesses and individuals should also be allowed to sell off their debts owed to them. The truth is – THERE IS MONEY IN KIGALI, people just don’t want to pay. Former soldiers and Police who are of a “persuasive” nature should think of forming such companies. We have a situation where banks are performing all those functions; credit-rating, debt-collecting, asset stripping and so forth. Banks managers often personally know their clients, so being tough is hard. We have to take it out of the banks’ hands into objective but ruthless people’s hands. There has to be a fear in defaulting, a fear of seeing everything you own being taken. With regards to credit-rating we need more help from government institutions. Our security services must allow credit-raters to use a version of their sophisticated location system. In USA it is the ZIP code, in UK the Post Code, a simple number that can locate an address or person. Our streets need names, every mudugudu should name their streets and roads. The revenue authority should share tax and earning info with these rating companies to produce an accurate assessment of the borrower. I think the banking system in Rwanda has learnt the lessons of lending to defaulters, all banks except for Bank de Kigali have gone bust in one guise or another. The question is what we do with the bad debt. We have three simple options; one is to have a debt cancellation but this will mean the government must pay these debts. Option 2 is to carry on as usual, which is unsustainable. Option 3 is to sell off this debt and convert it into an asset that can be sold, whoever can retrieve this money will have recouped a profit. Banks can either subcontract a debt-collector and give him a commission or sell the debt outright. One thing we will need is to have regulations governing the conduct of debt-collectors and bailiffs. Quite often they can use quasi-legal or outright criminal behaviour to retrieve debts. Like vultures they prevent disease by getting rid of rotten carcasses. A necessary evil because the other option is what we have now where people are just not paying and slowing business down. Ends