Imagine entering a state-owned bank today and obtaining a loan for Sh796 billion, which is equal to Kenya’s projected budget deficit for the fiscal year 2022–2023. The loan would be secured by land.
The bank may choose to sell your land as the final legal means of debt recovery if you fail to make loan payments.
However, the bank learns that the property you used as collateral is actually owned by the government, and it is difficult to figure out how you were able to secure title deeds for the valuable property.
Nearly three decades later, the bank has collapsed. But you’re walking free, and even manage to run for president, with thousands of people voting for you.
What sounds like a cock and bull story is actually one of the highlights in the life and times of former Lugari MP Cyrus Jirongo, who did exactly that in the 1990s.
The Nation has learned about the politician’s Sh40 billion debt to the taxpayer thanks to the Ethics and Anti-Corruption Commission’s recent questioning of Jubilee Party vice-chairman David Murathe and former National Assembly Speaker Kenneth Marende regarding millions of shillings received from Mr. Jirongo.
bank failure
A state-owned bank that failed in the 1990s, Postbank Credit Ltd., was nearly brought down by Mr. Jirongo alone.
In the 1993/1994 fiscal year, Kenya’s budget was Sh45 billion; however, the nation fell Sh2.7 billion short and had to borrow to close the gap.
Mr. Jirongo had taken out a comparable loan from Postbank Credit at the same time. After Mr. Jirongo increased his asking price to more than Sh2 billion, an ambitious National Social Security Fund (NSSF) real estate project in Nairobi fell through. The remaining portion was for Mr. Jirongo’s personal use.
But the land he used as collateral was technically public property that could not be auctioned to recover the debt.
In 1993, Mr Jirongo was one of the most untouchable people on the land. He chaired the Youth for Kanu 1992 (YK-92) campaign group that had successfully campaigned for President Daniel Arap Moi’s re-election a year earlier.
As has been customary in Kenya since independence, Mr. Jirongo received special status that allowed him to very much do whatever he wanted.
By that time, Mr. Jirongo had established a number of businesses that were engaging in dubious business dealings with governmental organizations, some of which were severely costly to the tax payer.
Offshore Trading Company, one of his businesses, borrowed Sh1.1 billion from Postbank Credit and put up a 1,000-acre plot of property in Nairobi’s Ruai neighborhood as security.
A year later, his Sololo Outlets business requested a Sh1.65 billion loan from the same bank. Mr. Jirongo utilized a second title deed for a 2.5-acre plot of land in Mukuru kwa Reuben, Nairobi County, to guarantee the loan.
As has been customary in Kenya since independence, Mr. Jirongo was given a plot of property in the Ruai neighborhood of Nairobi as collateral.
Debt of Sh40 billion
Both of the two loans were never repaid, and Mr. Jirongo now owes Sh40 billion in interest.
According to court documents submitted by the Kenya Deposit Insurance Corporation, the initial debt of Sh1.1 billion has grown to almost Sh20 billion.
Kenya had not yet implemented the “in duplum” regulation, which forbids the increase of interest rates above the amount borrowed, when Mr. Jirongo took out the loan. Also unfavorable in the 1990s were interest rates.
Postbank Credit was among 17 banks that collapsed in the 1990s after politically connected individuals borrowed billions and failed to repay.
Individuals borrowed more over Sh80 billion, but they never paid it back.
In addition to the obvious effects of failing lenders, the millions of shillings that hard-working Kenyans had deposited in such banks were destroyed, precipitating an economic catastrophe.
The Deposit Protection Fund (DPF) was chosen as Postbank Credit’s receiver manager and ultimately liquidator. Recovering overdue loans was a part of its mandate. The Kenya Deposit Insurance Corporation (KDIC), which is liquidating Postbank Credit and possesses title deeds for both properties, has since taken the position of the DPF.
