₦airaland Forum

Ugo (Owner of Ugometrics Business Blog) is back!  Here him:

Ugodre: Every now and then I meet people howling about their debt burden and how it's making life difficult for them. Some of the loans are consumer loans used to buy a car, finance a pet project or even pay for house rent. I have always believed that your loan repayment per month should never be more than 40% of your salary or monthly income. Anything more than that sets you on the path of financial crisis as the risk of default is mostly higher. But how then does one get out of financial crisis related to the burden of loans? I will attempt to give tips. As usual we will depict a real life situation for better guidance

Example: Wale decided it was time to take a loan since landing his new job in 2009. He borrows N2.6m to buy a tokunbo car and the balance to pay for a new 3 bedroom apartment he just moved to. He earns a take home salary of N200k a month and currently pays N80k to the bank as loan. He also spends on average N80k monthly in living expenses such as feeding, transportation, wardrobe, entertainment etc. leaving him with N40k as savings. Suddenly his company faces a financial situation and decide to slash salaries and cut staff strength. Fortunately or unfortunately Wale is not sacked but told to take a pay cut of N60k dropping his monthly take home pay to N140. He suddenly finds himself in deep financial waters as his loan repayment is now more than half his take home pay. He currently owes the bank N1.3m (excluding future interest) after paying back half of the loan which was about N3.8b (including principal of N2.6m and interest). Since taking his pay cut in November 2010 he has defaulted twice in repaying his loan as his expenses almost doubled after getting married. The banks have written him severally and have now decided to act. What should Wale do?

Step 1: Don't be afraid and never get depressed. In a capitalist society even the richest of men owe. In fact they owe billions and are often soothed rather than chastised when the bank man comes. The main reason for this is that no bank wants litigation (even if the outcome will favour them). So, as much as you are in deep financial mess they also are. In Nigeria, banks tend to fire small loan borrowers with also sort of threatening letters, like warning that they will write your employers, seize your car or any other collateralized assets etc. At the end of the day, an amicable solution is always better preferred.

Step 2. Ask yourself the honest question: Can I sustain this lifestyle? Should I sell my Car to repay part of the loan? How much can I really repay the bank within the current circumstances? All I really need to do is either repay the loan out-rightly, get a new job or simply just reduce the amount I pay the bank monthly. The following steps will be based on my decision to reduce the amount I pay to the bank monthly.

Step 3. How much can I possibly pay the bank now? When Wale was taking home N200k he was paying N80k as loan or 40% of net income. Tu remain at 40% of that figure, he will need to pay the bank N56k monthly leaving him with N84k. Since he is newly married he believes he needs at least N100k monthly to meet up with the demands of marriage even if it means him not saving. Therefore, the needs to pay the bank N40k monthly, that is half his original pay.

[b]Step 4. Now that you have decided how much you can afford to pay the bank, the next step is to determine what that means in the overall context of the loan. [/b]If you owe N1.3m and you wish to repay N40k monthly at an interest rate of 20% then the no of years you are looking to complete the loan will now be 4 years or 47months. What this essentially means is that the loan which was to last 4 years will now extend to 6years. Remember Wale had paid for 2 year and had 2 left and to accommodate his N40k repayment, he needs to add two more years. This move whilst a cash flow relief will bring additional interest cost almost 100% of the loan value at the end of the payment. You could also decide to adopt a progressive repayment rather than a uniform one. That is pay N40k for the first year and N60k the next and N80k till the loan is liquidated. This method does the twin job of giving you temporal relief while anticipating an improved cash flow and also helping contain the high interest cost associated with longer tenors.

Step 5: Approach your bank - Never get shy about telling your bankers your financial predicaments. Remember your success/failures is directly proportionate to theirs so its always in their best interest when you show intent to repay their loans. Set up a meeting with them at a place of your convenience, make sure its a discussion over lunch or drinks as that creates a friendly environment. Tell them your plans in the clearest form and give an impression its a honest and well thought out now. Make them understand its a win win situation and actually benefits the bank more as they get more cash flow. Don't be ashamed to tell them you just got a pay cut and as such don't have a choice but to do this. Even if you never had a pay cut but just have financial constraints, make them understand what your predicaments are and how a restructuring of the loan is the best option. They may come with their own proposals for a way out which may or may not be better than yours. Whatever the case just remember than your guiding principle is the cash available to you after you debt service.

Step 6: Forward an official letter to the bank: After you must have concluded negotiations with your account officers, you should now write them officially requesting for a restructuring of the loan. The tone of the letter can look like this. The response time for banks typically varies depending on the efficiency of their operations. Based on that it is often advisable that you follow up from time to time especially via emails. Emails are good record keepers as such is mostly preferred as a communication took.

Step 7: Post Restructuring: Once your offer has been approved, the bank will give you a restructured facility with terms and conditions. Make all efforts to read the fine prints as banks notoriously embed details in it. Ensure you look out for the following
I. Tenor - Make sure its the number of years/months you agreed with the bank
II. Interest Rate - Always check interest rates especially if they are tied to benchmarks. Sometimes they tell you its "subject to market conditions" or "MPR plus 12%". Whatever the case, they are simply telling you interest rates can go up (hardly down). Make sure your offer rates are competitive. To make sure, consult your accountant or friends in other banks.
III. Fees - Fees are often over looked when it comes to loans, whereas they are also a cost. When you are restructuring, the banks typically will charge you a "restructuring fee", "management fee" and facility fee". Restructuring Fee is a one off payment and can range from 0.25% to 1% of the loan. Always negotiate for 0.25% or even zero. It is possible if you make them understand you can't afford it. Management Fees are paid every year and is a flat percentage of the outstanding principal. They can tell you it is 1% of the Loan or 0.5%. Facility Fee is also similar to the restructuring fee. However, this is mostly charged for a new loan. Whatever the case strive for a total Fee that will NOT cost you more than 0.5% per annum.
IV. Security - Make sure the security (collateral) they are asking for is what you agreed with them during negotiations.
V. Caveats - There are usually loads of clauses and caveats that are found under "Other Conditions". It can be burdensome to read but since its your butt on the line, I suggest you read them. Particularly the clause that refers to early repayment. Some banks charge you if you decide to repay all or part of the loan before it is due. Make sure this clause says "you will not be charged for early repayment of all or part of the facility". Who know, you might land a lucrative job and decide to pay off the loan.

Step 8 - Sign a copy of the offer and keep an original as well (with the signature of the representatives of the bank).

Step 9 - Start to look for another job or find away to improve your financial situation. Even with the relatively affordable cash payment Wale has to make, he still has less disposable income available to him. As such a debt burden is something he needs to get out of his life. That will only be put to bed by an improved stream of cash flow.

Conclusion - Whilst these are basic steps to guide you, it is advisable that you consult Accountants, Lawyers when negotiating with a bank. Never be afraid to negotiate your way out of the pains of debt. Be smart and think rich

Source: http://www.ugometrics.com/2012/01/how-to-negotiate-out-of-bad-loan.html

@Henry049: Yes, and I think the petroleum engineers union is planning to shut down the oil wells soon.

Is puzzled if each day of the strike is costing the country N320Billion, then by day 3(today) we should have lost N960Billion? If we spent N1.3Trillion on Fuel subsidy over 9 months shouldn't someone very high up be sacked or be getting ready to resign? Or is my maths messed up?
Q. how did you come up with the N320bn figure?
A. Channels TV(check their ticker tape below the headline)

Wrong. According to the World Bank (via Google) Nigeria's annual GDP is about 200 billion dollars (about 32 trillion naira).  The daily GDP is therefore about N32tr/365 or 87 billion naira.  If we assume that there's absolutely no production going on in Nigeria right now as a result of the strike, then we could say the daily cost of the strike is about N87bn.

But you know as well as I do that ATM machines, telcos, websites and TV and radio stations, newspapers are working. Many businesses are running skeletally, especially in remote regions and the South-East. Moreso our primary source of foreign exchange, our oil wells, are still working and crude oil is still being exported. It would be more fair to say that, as a country, we are losing just 50% of our productivity to the strike. That would put the cost of the strike at N44bn per day, or about 130 billion naira so far, based on our preceding assumptions.

It would take about a month for our 'losses' as a result of the strike to exceed the subsidy amount.

That's what we are all losing by sitting at home, but here's the thing: that's not what the Nigerian government is losing. The government's losses are limited to the income they would have obtained as a result of our productivity. Right now, the government relies on the export of crude oil and not our taxes for most of its revenue, and certain costs to the government have been saved because we're no longer consuming public services as much as we usually would, so it would take months for the government's losses to come close to the subsidy removal savings. Sorry.

How did you calculate the daily cost of the strike?

The registration system required is almost the same as was required for voter registration.

NOI: We should be investing 1.6 trillion naira in infrastructure every year , an infrastructure deficit?

The mod is making the point that all the things they said they want to do have been done before and there was no result, so why would this be different? NOI says the reason is because of the delays in payment to the contractors, which extends the projects.

SLS has made it clear that it's not as if Nigeria is broke, and NOI confirmed it,
so they can afford to bring back the subsidy tomorrow if they want to. QED.

The constitution requires a minister from every state, a bicameral legislature, etc.  
If the constitution is amended, those costs can be significantly reduced.

NOI:
Salary bill is 80% of recurrent expenditure, overhead is 6%.
The minimum wage (53% increase in salaries) is responsible.
They will embark on a biometrics program to reduce salaries and also merge duplicate agencies

Dazzel:
they are saying its 'either OR'. good roads, electricity and development OR Subsidy reversal. So pick ONE

If they can't do what we want, they should resign. Then we'll really know it's impossible.

Oando sounds like a good company. Don't tarnish their image based on the cabal propaganda nonsense.

NOI: "Maternal mortality , it is unconscionable. X million lives!" If I hear maternal mortality one more time!

SLS: Nigeria produces 1 barrel of oil per day for 80 citizens. Saudi Arabia has 1 per 3 citizens.
NOI is explaining why crude oil can't be sold below it's international cost within Nigeria.

SLS is trying to explain why petrol's "real cost" is not 40 naira and that there's a subsidy. 
He's trying to explain opportunity cost in an understandable way. I like his calm demeanor.

They are more calm, trying to project diplomacy and understanding.

NOI just repeated her pitch about Nigerians wanting to see the results.

Check AIT right now. Our two favorite bureaucrats are discussing deregulation and fuel subsidy removal. And they are currently debuning El-Rufai's nonsense about the fuel subsidy removal being a tax.

[quote author=ekt_bear link=topic=842581.msg9929473#msg9929473 date=1326137718]But the question is, how do you do this in a country with poor record-keeping?[/quote]Same way they did voter registration, sending out agents with laptops, fingerprint scanners, and webcams to gather the data. If possible, it may be cheaper to use the data in INEC's voter registry as a starting point. It can be done much cheaper than INEC did it if the exercise is not rushed.

Evil Brain:
Over a year ago, I suggested that all the oil proceeds be distributed directly to the people in cash; with the federal, state and local governments having to survive entirely on taxes. The US state of Alaska has often paid oil reciepts direcly to citizens so there is some precedent.

Aside from the the obvious reduction in government waste and increase in accountability, there's also the fact that poor people spend money in ways that are far more beneficial to the economy than rich people (they buy local garri instead of imported big screen TVs).

Great idea. Fuel vouchers have a slight advantage because they are like a natural extension of the current subsidy.

There are 2 problems with this proposal, both of which also apply to Seun's:
1. The corruptocracy would still find ways to steal the bulk of the money either through "ghost Nigerians" or cooking the books.
2. Such a proposal is impossible to implement without a revolution. The elites will never allow it.

If the person at the top is tough and not corrupt, and that person is careful to recruit the most honest people around, there's a good chance that the corruption in the process will be minimal. Why do you feel the elites will never allow the implementation of fuel vouchers?

@efisher: good ideas, but I think they need to be separated and really simplified.

oxford:
A man who wants to lead the orchestra must turn his back on the crowd.
Max Lucado

What does that mean, especially in this context?

Transcript of part of Dr. Ngozi Okonjo-Iweala's Latest BBC Interview

Many people see you as the face of subsidy removal in Nigeria. Some even are accusing you of playing out the script of the world bank and IMF in advising the president to remove the the subsidy and subject Nigerians to hardship and suffering.  Are you comfortable with this?

Absolutely not, because it's absolutely false. First of all, I worked at the World Bank and I'm proud of it, because I learned a lot. The world bank and IMF have nothing to do with this decision whatsoever. This is an internal government decision and President Goodluck Jonathan has made it very clear. When I was going to come here, there were groups that came to me and said they did not want me to join government because they want President Goodluck Jonathan's government to fail.

So these same people are now seizing the opportunity to say that I'm the face of subsidy removal. It's absolutely wrong. Remember that six months before I came, the governors had all pushed for subsidy removal. This subsidy removal has two decades of history. Almost every president from President Babangida to President Obasanjo has tried, to it's not Ngozi Okonjo-Iweala. When I didn't know even what subsidy removal was, they were working on it.

But the report making the rounds is that you have threatened to resign if President Jonathan buckles under the pressure of opposition and rescinds the decision of subsidy.

Well I think that is absolutely laughable saying I threatened to resign. First of all, the emergency meeting about which this people cooked up this story, I was not even present. They said that the FEC held an emergency meeting on Wednesday during which they decided issues on the subsidy removal. I was not present because on that particular day I was with my family; I was ill, in Washington, suffering from bronchitis. I was not there, so  how could I even resign or say any such thing? So it is false.

And I want to tell you that because these people don't want me to be working in this country, because I stand for very clear things like principles against corruption, principles like we love Nigeria so we must do the best to get this country moving. They don't want me here, so this is a golden opportunity for them to try and hang it on my neck, but they will never succeed, because that's not what it is about.

http://www.bbc.co.uk/news/world-africa-16467452

Arosa:
Op, that is a good idea, but I want to make an amendment to your proposal. The voucher should not  be for all above 18, rather for poor Nigerian house hold only. that means a certification of poverty will be required for one to get a fuel voucher.  

At first glance, that would seem like an obvious way to save money, but it's a big mistake.  What you're saying in essence is that if people are poor, you give them the vouchers, but if they work hard to get jobs and make more money, the vouchers will be taken away from them.  In essence, you're encouraging people to remain poor. It's important to help the poor, but it's also important not to punish them when they aspire for a better life by taking away their benefits.  Moreso, the problem of figuring out who is poor and who is not poor will be an avenue for corruption, so it's best to avoid it completely.  Vouchers worth the same amount would still benefit the poor much  more than the rich because the poor consume less fuel.

Kobojunkie:
Smarter way to subsidize fuel consumption? Really??  

Fuel is primarily consumed in productive activities. It's consumed when you go to work every morning and return home every evening. It's consumed when you run a generator to power the equipment needed for your business. It's consumed when any product is transported from the point of production to where it's needed, e.g. veggies from the north to the south. It's consumed when you manufacture things. It's consumed by tractors during the practice of agriculture by farmers. You can't produce anything without consuming power, and most power comes from fuel.  

Subsidizing fuel consumption subsidizes the production of almost anything you can imagine. Even when fuel is used for pure consumption, like powering your generator to watch a Nollywood movie, or a Fan so you can sleep at night, it contributes to your mental health, which also helps your performance at work. So subsidizing fuel consumption is much smarter than you would initially think. Fuel subsidies are smarter than many other forms of government expenditure, because people will use the subsidized fuel for activities that benefit them most, whether productive or otherwise.

The fuel subsidy is equivalent to about N18,000 per Nigerian over 18, 50% of which is lost to corruption, so the subsidy is worth about N9,000. Can't the government just give out "fuel vouchers" worth N9,000 to every Nigerian over 18 every year?

The fuel vouchers would be accepted in lieu of cash at filling stations to buy anything - petrol, diesel, kerosine, gas - and the stations would be paid when they return the vouchers. With that in place, we can leave pricing to market forces.

This is a smarter way to subsidize fuel consumption because (1) The smuggling problem will no longer exist. (2) The problem of rich people benefiting more from the subsidy because they have more cars and bigger generators will be solved. Every Nigerian over 18 will benefit equally from the voucher subsidy scheme. (3) It would not encourage people to use petrol when diesel or gas would be more efficient.

Poor people would use the vouchers to buy kerosine and pay for transport, because transporters would accept them in lieu of cash and use them to buy fuel. The middle class and small businesses would use vouchers to buy fuel for their generators and small cars. This system for subsidizing fuel should cost less than the former approach and help the poor much more, or what do you think?

Other ideas:
- Increase Petrol Price By 85 Kobo Every Week For 3 Years
- Privatize Public Schools And Distribute Their Shares To The Masses

Extravagant

[flash=540,315]
https://www.youtube.com/watch?v=SNTvWKjRozQ[/flash]

via CP-Africa

Some quotes:

"The govt understands the feelings of many Nigerians because transport costs have gone up and the govt is trying to make sure the benefits that come out of the removal of this subsidy are put into programmes that directly benefit the people and bring down costs.

"For instance, this afternoon president Goodluck Jonathan launched a programme of mass transit to improve bus and road transportation for the people so that the cost of transport can come down. About 1100 buses were put on the road and the road transport workers association has agreed to bring the costs down because the buses use diesel which has been deregulated for quite some time so there was really no need for costs to go up.

"What we're doing is trying to bring the benefits of the subsidy phase-out to bear, so that prices can come down. For instance, the price of transport is set to come down because the transport worker's association has accepted that there was no need to increase the price of bus transport because buses use diesel, not petrol. And so they are going to bring that down. In addition, we are working with other transporters to try and bring prices of transport down. 

"We are also working to improve other services which affect the population. For instance, part of this money is going g to be put into services for maternal health and child mortality. We have one of the very bad indicators for maternal mortality in the world and it is unconscionable that our women should be dying in childbirth whilst we're using money to subsidize [petrol] which the poor people in the population do not get. so we need to improve these services to the people.

"We are going to be improving roads. Of the $8 that goes into the subsidy, $4 billion will go into improving road transport and rail transport, and the rest will go into supporting the creation of employment for youth, improving maternal mortality, and into mass transit programs. These are all programs in which the poor in the population will benefit much more than they do from the issue of subsidy."

Hmm. So voting should be compulsory?

@oyb: So VP Sambo can take over?  Wasn't Sambo put in power by the same "corruption"?

oyb:
the corruption that put him there in the first place?

Do you have a better idea?

I would return the subsidy with immediate effect, and work on eliminating the corruption in the process.

How about a 7-day dry fast to show them you really mean business? burning your laptop?