Ideas & Debate

Beware! Shylocks come in all guises, borrow wisely

shylocks

Borrow wisely this year and, if you’re in the business of investing, apply wisdom for the same! PHOTO | SHUTTERSTOCK

Many years ago as a rookie banker, a colleague of mine found us a get-rich-quick scheme that would help circumnavigate bank policy that prevented employees from doing any business outside of the bank.

The colleague knew “a guy” who lent out money to individuals in dire need of help and “the guy’s” customer demands were growing faster than he could capitalise his business. My colleague approached a number of us in the bank to provide short-term loans in exchange for some serious interest returns, ranging in the lower double digits. We did. Boy did we make good money!

After three months, our loan was repaid together with the interest and, in keeping with the greedy nature of the human being, we asked “the guy” to place even more funds in his very enterprising venture. Remember we were bankers and knew the benefits of short-term risks, which risks were being mitigated firstly by the acknowledgement of our debt in the form of “certificates” and the liquidation of the same in a fairly short 90-day period.

Furthermore, or so we consoled ourselves, our bank was not into retail lending so there was really no conflict of interest. Finally, it was not “doing active business per se” as per the policy, as there was no restriction on where one could passively invest their funds.

Well, as with all such get-rich-quick schemes, there wasn’t such a happy ending. “The guy” now had a veritable source of easy money and got a little fast and loose on his lending policies, meaning that repayment from his borrowers wasn’t being tracked as well as it should have been.

The first sign of distress was when a repayment date for our loans came and passed with no funds being sighted, followed by a polite request to allow us “investors” to roll over the principal and interest. Being trained bankers, we saw trouble with a capital T for train-smash loading. We made it out of that fiasco with the skin of our teeth barely intact and a realisation that we were actually shylocks in nice suits funding a knee-cap busting, no guiding policies, catch-me-if-you-can shylock.

Many years later at another bank I worked in, the human resources (HR) department became concerned when their reception was getting filled with tough looking “guys” who were coming to demand repayment for loans to the bank’s employees that were not returning their calls.

The problem was so endemic that the bank had to create a special programme that allowed the numerous employees to breach their debt service ratio (where not more than 30 percent of an employee’s salary should be going to service bank loans) and get extra loans to pay off the shylocks.

The purpose of the debt service ratio is to ensure that the borrower has enough disposable income to have a decent living free from the very real distress of having throat-choking and bank-induced liabilities that can affect their psychological wellbeing. But this is where it got interesting.

Upon a quick review by HR of who the cheques to pay off the loans were being made to, since the bank was not foolish enough to release the funds directly to the delinquent employees, a number of the cheques were being made to other bank employees! As the Swahili wahenga aptly postulated, kikulacho ki nguoni mwako or simply put: the enemy is always within.

This was a tough call for HR. Remember, their most difficult employee lifestyle challenges by this time were the odd baby mamas or cast-away wives that would show up at the reception presenting court issued garnishee orders for child support on a male employee’s salary.

There was no policy per se about bank employees conducting the business of shylocking or, for that matter, farming those services out to their colleagues! Anyway, there was no happy ending to this debacle.

Once the shylocks were paid off and the HR reception finally got some natural light, quite a number of the delinquent employees simply went back to other shylocks and borrowed some more now that their shylock debt slate was clean. As the English wahenga also aptly postulated, “You can take a donkey to the river, but you can’t make it drink”. Borrow wisely this year and, if you’re in the business of investing, apply wisdom for the same!

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