American debt collector now closes African shop

Most banks in the region recorded an increase in bad debts in the past financial year. PHOTO | FILE 

By GEORGE KAMAU

In Summary

• CAL has closed its operations in Kenya, Uganda, Tanzania, Rwanda, Zambia and Malawi, leaving hundreds jobless.
• Decision to close the debt collection unit at a time when banks in Kenya, Uganda, Tanzania and Rwanda are struggling with bad loans has raised concerns as demand for debt collectors is expected to rise.
• TransUnion, the parent firm, has been accused of failing to be aggressive outside the South African market.

Collection Africa Ltd, the debt collection wing of American credit reference bureau TransUnion, has closed its African operations, citing harsh economic conditions.

CAL has closed its operations in Kenya, Uganda, Tanzania, Rwanda, Zambia and Malawi, leaving hundreds jobless.

“The company has been suffering from low performance levels over the years. These have adversely affected the group’s results and been margin- dilutive to the enterprise,” said Collection Africa director Grant Phillips in a communication to staff seen by The EastAfrican.

Mr Phillips disclosed that the company had tried to merge with a competitor to leverage on their system but did not find a suitable investor. It has also tried to dispose of the business over the past two years with potential buyers opting out after conducting due diligence.

“Each potential acquirer was afforded the ability and documentation to undertake an extensive due diligence. This highlighted a number of going concern challenges and ultimately resulted in all interested parties declining to proceed with any transaction,” added Mr Phillips.

Rise in bad loans

One of the potential buyers is said to be Kenyan-listed investment firm Centum, which recently invested in the banking sector through the purchase of a majority stake in Sidian Bank.

The decision to close the debt collection unit at a time when banks in Kenya, Uganda, Tanzania and Rwanda are struggling with bad loans has raised concerns as demand for debt collectors is expected to rise.

In Kenya, non-performing loans are currently at an all time high at Ksh228 billion ($2.2 billion) or 9.7 per cent of total loans issued. Bad loans in Tanzania shot up to Tsh1.43 trillion ($633 million) in December, which was attributed to tight liquidity in the country.

Auctioneers a king

Sam Omukoko, managing director of Metropol Corporation, which offers debt collection services and also serves as a credit reference bureau, noted that banks usually outsource written off debt which is difficult to collect as one has to start with tracing the borrower.

“Auctioneers are still king a in Kenya’s market,” he said.

TransUnion has been accused of failing to be aggressive outside the South African market.

This has been attributed to perceived low contribution to the company’s global performance from markets outside South Africa. The company ruled out investing additional cash in supporting the debt collection business, stating “It does not form part of the group’s core business or growth strategy.”

TransUnion’s core business is in credit information sharing, credit scoring and preparation of ratings reports.

These closure of the business has contributed to a growing job crisis in Kenya, East Africa’s largest economy.

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