Accessing the Non-Secured Credit Facility

Are you seeking for a non-secured loan? Please read this first.

As earlier stated in the piece on Building Relationships With Banks, offering credit is one of the major functions of local banks not only in Kenya but worldwide. When it comes to credit, banks have sectoral tailored products with certain specified terms and conditions for ensuring that they retain value and make profits since they are in business. Non-secured lending or simply stated as loans with no tangible security have since their introduction to the local market become a very lucrative business though inherent with high levels of risk. The terms and conditions for these popular lending are fairly stringent though are enabled towards faster credit facility turnaround time. Commonly referred to as consumer lending, the assessment and approval requirements are almost standardized within the bank thus does not need high level credit analysis expertise. For some banks, the process is automated because of the high volumes, straightforward assessment process and ticket size. The distinguishing features associated with these credit facilities include shorter duration repayment periods and higher interest rates and fees. With a shorter turnaround processing time, and the due diligence process behind the use of funds after disbursement not as rigorous as in other loans which are of a larger ticket size, the product is the choice of many bank clients. The commercial banking sector has classified them as consumer credit, of which the proceeds are directly credited to the clients’ account and do not have stringent rules and other conditions as to the application of funds. The client account is credited in one tranche once the letter of offer is acknowledged and signed for disbursement. The only related intangible security is the credit life policy which is mandatory across many banks.

During application, the requirements on the form are not as detailed as the other bigger long term loans since they almost match the biodata on the existing account. The main requirement is for the client to demonstrate the ability to service the facility by declaring what they are engaged in. Once there is a clear demonstration of steady income over a specified period from the income-generating activity then the fundamentals are in place. Additional areas of scrutiny include historical aspects such as past precedence on honoring items such as standing orders, cheques, timely repayment of past loans etc. For determination on issues of stability, parameters such as age, marital status, industry engaged in and frequency of changing jobs for those in employment, client reputation, and sector performance etc. are critically looked at. For small businesses that may not be able to produce audited accounts but when good business turnovers are in place a matrix is completed using raw data from areas such as sales revenues, the margins and the costs associated to help determine profitability levels. It is from such data that the bank will decline the request or determine how much credit one can access and advise accordingly.

At the earliest opportunity, once the bank is comfortable with the information given, the facility is approved and a letter of offer with an expiry time limit issued. Currently in Kenya, the highest amount lent to both employees and business people in this sector does not exceed Kshs 6m or thereabout with a repayment period not exceeding 5 years. It is these terms and conditions for this product that places the portfolio under consumer lending. This facility is popular with employees with a steady periodical income and Micro SMEs who may not have suitable collateral. Most individuals start their borrowing from banks at this stage, the product though expensive but necessary for growth.

The major cause of the high pricing is the high risk associated with the same designed to cushion the lender from heavy write-offs that may arise due to any future negatively altered circumstances. Citizens of good standing meeting the above criteria can access these products whose turnaround time is faster than the secured loans that take longer.

Remember this is just a top view of what to expect. It should be noted that the scenarios can vary from one institution to another depending on their risk appetite and chosen market niche though most are structured along this format.

Thank you for reading through and and feel welcome to visit again as the series on demystification of commercial banking continues.

“To err is human and to rectify is divine”

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Let me have your questions and feedback in the comments box or e-mail thebanjan.blog@gmail.com



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