Here is a quick list of The 10 Kenyan Rules of Personal Lending, a list that can help you chart your way through the choppy waters of “friendly lending”.  Feel free to top-up on this list and drop us an email on what may have worked for you.

 

Why do people borrow to give?  In no text or scripture is there buried wisdom that states: “Give what you do not have.”  Often times, one side (the falsely generous lender) ends up repaying interest on a loan that their friend has refused to pay back – never mind the fact that their friend has upgraded to a more expensive residence.  It’s a clear WIN-LOSE scenario from the start.

 

Let’s end this – whether we do it from guilt or hope.
Let’s end this now.

 

 

What do you expect?  Repayment, for starters.

 

What else? 
Will you charge interest?  If yes, how much?  How soon do you want the money back, or will your loan be open-ended?  What is the money for?  Have this conversation, right at the start.

 

Caution here
Any loan that lacks a fixed repayment date will be treated as a grant.  In fact, your borrower will take on the attitude: “There’s more where that came from, so I don’t need to pay it back.”

 

Food for thought.

 

It’s mind-blowing that every time we raise this issue at our workshops, our Clients balk at this reality.  They complain:

 

“Surely, Phyllis, am I to make my sister sign that I have lent her money?”

 

This is how we respond:  “When your husband walked you down the aisle, you exchanged vows – your commitments to and expectations of one another – right?”

 

Then follows the killer question: “So if you and your husband put pen to paper in front of witnesses, why can’t you and your friendly borrower do the same?”

Document what you expect, with clear timelines.

And get a witness to sign, too.

 

Then write out a Banker’s Cheque to your friendly borrower.  Mobile transfers, in personal lending, eventually lose their footprints in your wallet and mind – so go back to lending using a Cheque, for ease of tracking.

 

 

Security is simply assurance your friend provides you and they should be comfortable doing so, after all, they are going to repay you – right? If you do not know where to start, your lawyer could help you draft a template agreement that you can quickly use going forward.

 

 

We have a number of Clients whose home deposits are sitting in their friends’ hands.  It is surprising to see that the soft loan here, and the mobile transfer there, quickly do add up and voila! before you know it, a large sum of cash is in your borrower’s hands.

 

Ask for your money back – verbally, and in writing.

 

 

Think about it: You worked in order to earn your money.

Why is it that when someone simply asks, cash then proceeds to flow out of your pocket?

Do you require effort on their part to, say, come up with 50% of what they need, then you can match?  And we are not talking about giving to the poor here because there is a place for giving in our lives.

 

Rather, what talents, skills, abilities or knowledge has your friend applied to alleviate their situation?  Or is your cash needed to maintain your friend’s or relative’s lifestyle?

What lessons are you teaching – production, or consumption?

 

Too often, the person lending may feel they must explain to their friendly borrower why they need to sign an agreement, have it witnessed and take security, before they can give out the loan.

 

Think about this: A Bank does not feel guilty asking you to sign all that paperwork, because they know they are lending responsibly and they have a duty to protect their shareholders’ funds.

 

If you do not use this list, you must ask yourself these two questions.

a. Do you want to lend responsibly?

b. Do you have a duty to yourself to use wisely what you have been blessed with?

 

Or do you want to take the wide road of ease and lend without expectations and:

a. Enable irresponsible financial behaviour, on the borrower’s part.

b. Treat your money as a grant – basically saying, “You don’t have to pay me back. Just do whatever and pay me whenever.  There’s more where that came from.”

 

Print this list every time you receive a borrowing request from a friend, and go through the list with them – over tea, coffee or your preferred beverage – face-to-face.  It’s not the Spanish inquisition.  Have a clarity-seeking conversation, and enjoy getting to know each other better, too!

 

Now that you know what you know, will you lend?

 

In the final analysis, the choice remains yours.

 

Choose wisely.