Senate probes Nyeri over unsecured loans

A Senate oversight committee has faulted the Nyeri government for issuing uninsured loans, accepting unvalued land as security and disbursing funds without proper vetting by the loans board.

The Senate County Public Investment and Special Funds Committee questioned Governor Mutahi Kahiga’s administration over Sh16.3 million in loans that were issued without valuation reports to confirm the value of the land used as collateral.

The auditor general, in her latest report on the Nyeri County Enterprise Development Fund for the year ending June 30, 2024, warned that the absence of valuation documents puts the recovery of the loans at risk.

According to the audit, loans totalling Sh16.3 million were issued to 41 beneficiaries, 34 of which—amounting to Sh13.4 million—were secured using title deeds, but no valuation was conducted.

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“It was not possible to confirm whether the management would be able to recover the outstanding loan amounts in case of default, as the value of the land may not be commensurate with the loans advanced,” the report reads.

Governor Kahiga admitted the lapse, saying the county has now engaged pre-qualified valuers to assess property before loans are approved.

“The management has noted the issue of unvalued loan securities and has adopted pre-qualified property valuers from the county government,” he told the committee.

Committee chairperson and Vihiga Senator Godfrey Osotsi pressed the governor to explain why the securities were accepted without valuation.

“What happens if you now value the land and find out it is worth far less than the loan issued?” Osotsi asked.

Kahiga defended the fund, saying it began with a seed capital of Sh10 million and has since grown to Sh90 million, adding that loans issued range between Sh50,000 and Sh500,000 to minimise default risk.

Since its inception, the fund has supported 182 beneficiaries. However, 12 loans worth Sh4.6 million are classified as non-performing, with no repayment made to date.

A further 83 beneficiaries owe Sh11.7 million as at June 30, 2024, despite loan terms requiring repayment within 24 months.

Kahiga said the county has escalated recovery efforts by issuing demand letters and involving the county attorney to pursue legal action.

The governor was also questioned over the County Car Loan and Mortgage Staff Scheme Fund, where loans worth Sh21.2 million were issued without mandatory documents, including approvals, valuation reports, building plans and mortgage insurance cover.

Kahiga said all securities would now be valued to ensure the county does not incur losses.

“Should there be any default, the regulations provide that the properties used to secure the loans may be recovered through legal proceedings,” he said.

INSTANT ANALYSIS

County governments operate several funds. They include County Emergency Fund and specific development funds like the Ward Development Fund and the County Assembly Fund, which provide financial support for emergencies, community projects and legislative functions. They also operate several empowerment funds. However, the recoverability of the funds disbursed as loans for empowerment is in doubt.