Debt collectors flourish in wobbly economy
The uptake of debt collection contracts has particularly shot up among State-owned agencies amid pressure for revenue to support their operations.
Debt collectors in Kenya are booming as both private and public firms rushed to hire their services, an indication of the financial squeeze facing most organisations right now.
With billions of shillings lying in the hands of their uncooperative debtors, many frustrated organisations are turning to professional collectors to help unlock the funds and boost their liquidity in an economy hit by thinned revenues and income.
The uptake of debt collection contracts has particularly shot up among State-owned agencies amid pressure for revenue to support their operations.
The University of Nairobi (UoN), Kenyatta National Hospital (KNH), the National Construction Authority(NCA), and Kenya Power are the latest State-linked firms to have enlisted debt collection services.
These entities join several other State agencies such as the National Oil Corporation of Kenya and the Higher Education Loans Board (HELB) which have already enlisted the services of debt collectors.
“The government is putting pressure on state bodies to improve their own-source- revenue, what they call appropriation in aid, to reduce dependence on government support and bailouts. There is a feeling that if they can clean their books and recover debts they can raise substantial amounts of resources,” Eric Oluoch, chief executive officer of Quest Holdings, a debt recovery company, said.
The UoN has been struggling to make ends meet with a falling student population, mismanagement, and low State funding, just like other public universities.
The funding gap for students in public universities has more than doubled in the past two years, signalling even tougher days ahead for the cash-strapped institutions.
Data from the Universities Fund (UF) — which guides the allocation of State cash to public universities — shows that the gap has hit Sh27 billion in the current financial year, a 107.7 percent jump from Sh13billion two years ago.
The University of Nairobi had the biggest shortfall of Sh2.17 billion, Kenyatta University needed an additional Sh2.13 billion for operations and Jomo Kenyatta University of Agriculture and Technology had a Sh1.4 billion shortfall.
Egerton University needed an additional Sh1.3 billion to stay afloat while Moi University was short Sh1 billion while the Technical University of Kenya had a shortfall of Sh769 million to remain operational.
Meanwhile, UoN has outstanding debt of Sh4.6 billion according to the auditor general report out of which Sh1 billion is owed by students sometimes for over a year which it has struggled to collect.
“The ageing schedule of debtors provided for audit revealed a balance of Sh857.8 million of the student debtors has been outstanding for more than a year,” the auditor general Nancy Gathungu said.
KNH’s receivables from exchange transactions stood at Sh1.5billion as of June 30, 2018 including receivables of National Hospital Insurance Fund (NHIF) rebate, Ministry of Health disaster debts, and return to drawer (RD) cheques that have been outstanding for more than two years.
Another State agency, Uwezo Fund wants to enlist the support of chiefs and engage youth groups across the country, to enhance repayment.
Beneficiaries of Uwezo Fund, Jubilee government’s support for youth groups, women, and People Living with Disabilities (PWDs), have defaulted on Sh4.6 billion.
Set up in 2014, Uwezo has disbursed over Sh7 billion, with the beneficiaries having repaid only Sh2.5 billion, representing a repayment rate of 39.5 percent.
Kenya Power has been unsure about collecting half of its customers’ unpaid electricity bills most of which have been outstanding for over three months.
The utility company impaired Sh15 billion of the Sh29.6 billion unpaid electricity bills as at June 2021 according to the company's annual report.
The firm says repeated attempts by internal teams have yielded little fruit and it has now turned to debt collectors to reduce outstanding bills, especially those that have been overdue for more than six months.
The loss-making Kenya Power however hired debt collectors to help recover outstanding bills amounting to Sh1.29 billion to improve its cash position.
“In the year under review, the Company brought on board four private debt collectors, to complement internal debt collection efforts while the remaining four will be procured in the financial year 2021/2022.
“The private debt collectors have been tasked with collecting overdue debt that is over 180 days old and has remained uncollected despite repeated efforts by the internal teams to recover it.
Helb has for several years relied on debt collectors to reclaim its loans. Helb paid debt collection firms Sh47.6 million in 2019 down from Sh91.4 million the previous year.
The loans board has managed to tame its outstanding debts which stood at Sh127.4 million in 2019 while mature loans to students stood at Sh29.4 billion.
The institutions have turned to debt collectors whose industry is currently evolving following the formation of the Association of Debt Recovery Agents – ADRA Kenyan chapter.
Mr Oluoch says the association, which currently has 25 members, seeks to clean up the industry that for years has been tainted by rogue individuals who use brute force to enforce debt recovery orders.
Debt collectors in the digital space have also garnered a bad reputation for threatening borrowers and shaming them through unsolicited calls to people in their contact lists.
“This industry is still very nascent but a lot is changing, we now have our association where we plan to make it more professional and generally business is increasing as we see banks embracing the model of outsourcing defaulted debt,” Mr Oluoch said.
Kenya has provision for debt collection agencies whose operations are governed by the Auctioneer’s Act.
A secured creditor may appoint a debt collector/licensed auctioneer after exhausting the normal debt collection procedures through attempts at an amicable agreement on payment of the debt even without first going to court. All other creditors need a court order before seeking to attach a debtor’s assets.
