What you Need to Know about Shylock Business in Kenya


”So he will always come back from his pound of flesh,” Shylock  refers to the business of lending money for outrageous interest rates.It’s origin is drawn from Shakespeare’s, “The Merchant of Venice.” This high risk business has gained popularity over the years ,that those who practice it are easily reach compared to before.Though, not everyone who practices it knows the legal side of it,and other practices involved .So, how does the entrepreneur relate to the customers?On the other hand how do customers relate to sharks?What does law say about it?Most people really do not know why Sharks exist and how they operate,before you get involved do not miss out on the following key aspects;

Why is shy-locking a booming business

Money -lending business flourish because

  • Shylock has much lower interest rates compared to banks
  • They allow a negotiable loan repayment days.`
  • To borrow from a bank one needs a good credit history while,Shylock does not require any history on money borrowing from a client
  • It is safe for defaulters listed by CRB
  • The transactions are quick and requirements are minimal
  • Quick loans loans for business startups and personal needs(offers instant monetary fix)
  • The customer chooses the security or guarantors to give to the shy-lockers.

The risks involved in money lending Business

  • Default debts
  • Non-registered  micro finance businesses are not protected by law
  • Instances where the trust the loan is given on Trust gentleman’s agreement,where the client does not offer security the shy-locker goes to a loose in case of defaulting.
  • Clients may give  stolen or faulty items as security.
  • Borrowing becomes addictive
  • Making friends with the police to scare defaulting clients
  • Cunning clients who give false information about themselves,hence cannot be traced.

What the does the law say about Micro finance business

Most Kenyans have lost their property through Shylock ,and did not how the law can protect them.Since shy-locks in Kenya refer to their business as micro-finance,has the law challenged them yet, on this matter?

  • Contract law-Chapter 23 (3) of the Kenyan Law ,”any debt must be in writing to be enforceable.  Chapter 23 (2) (2)  “no contract in writing shall be void or unenforceable by reason only that it is not under seal.” Hence,most shy-locks provide poorly sketched contracts to clients when they lend out money.
  • Micro-finance Act of 20o6-In Chapter 19 Part 1 (2) of the Micro-finance Act of 2006, a “micro-finance business” is defined as anyone engaged in lending or extending credit at his own risk, “including the provision of short-term loans to small or micro enterprises or low income households and characterized by the use of collateral substitute.” The Micro- finance Act also requires anyone conducting this kind of business to be licensed. In Part II Section 9 (1) (c) of that same act, it states that a license can be revoked and the business shut down if the business being conducted is “detrimental to the interests of its depositors or customers.
  • Licensing-Chapter 19 Part II (4) (1) provides that “no person” can operate as a micro -finance business unless such a person is registered as a company pursuant to the Companies Act and licensed through the Central Bank of Kenya. The penalty for noncompliance, as provided in Chapter 19 Part II (4) (2) is “a fine not exceeding one hundred thousand shillings, or to imprisonment for a term not exceeding three years, or to both.”
  • Subject Authority– Chapter 19 Part II (4) (i) concerning micro-finance businesses, the Central Bank has the authority to prohibit any “such other activity as the Central Bank may prescribe.” Chapter 19 Part IV provides for Central Bank’s authority to inspect the records and even to intervene in the management of any micro-finance business.
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