It is encouraging to see that commercial banks are adopting alternative means of recovering debts instead of forcible seizure and auctioning of the properties of defaulting debtors.
Asset repossessions and painful auctions often cause animosity and sour relations between lenders and their clients.
The willingness shown by NCBA and Co-operative Bank to sell Kaluworks to billionaire Manu Chandaria’s Comcraft Group, which they had seized as part of a KSh6.6 billion debt, should be emulated by other institutions financial.
The lenders opted for a private arrangement after hesitating to inject 750 million shillings to revive one of Kenya’s largest makers of aluminum utensils and roofing sheets, amid hurdles to find a buyer for the company.
Kaluworks shareholders agreed to pay 1.2 billion shillings to bankers to lift the receivership, with NCBA and Co-op Bank opting to cut their losses.
Private treaties allow distressed borrowers to find the best options available to repay their loans without making them worse and also help them maintain relationships with their bankers. Financial institutions can help individuals and businesses get back on their feet, saving jobs.
Auctioneers are not selling as fast as they are picking up after Kenya’s sluggish economy cut asset prices below the minimum bid value set by law. Indeed, auctions should be the last resort as they also deprive borrowers of a source of income when they are forced out of business.
It is also important that policy makers put in place credit guarantee schemes that protect lenders in the event of spikes in default.