What you need to know:
- Documents show that Shelter Afrique's boss James Mugerwa has been dishing out subprime mortgages to unqualified borrowers resulting in a steep rise in the company’s non-performing loans.
- The documents show that Shelter Afrique has been restructuring overdue loans by rescheduling such facilities to appear and making them appear as performing, effectively suppressing the volume of toxic mortgages.
Top managers at pan-African housing financier Shelter Afrique have been thrown into the eye of a storm after documents emerged showing massive looting of funds through creative accounting and subprime lending that is now under investigation.
Documents seen by the Business Daily show that the company’s managing director, James Mugerwa, has been dishing out subprime mortgages to unqualified borrowers resulting in a steep rise in the company’s non-performing loans.
At least 59 per cent of Shelter Afrique’s $246.3 million (Sh24.63 billion) loan book was classified as non-performing by February 2016, according to documents addressed to the lender’s board of directors and financiers.
Jean Paul Missi, chairman of the Shelter Afrique board, acknowledged receipt of the documents and promised appropriate action.
“The board asserts that the allegations are taken seriously and will give them appropriate attention,” he said, adding that the organisation is committed to complying with the highest international standards, best practices, and its policies.
The documents show that Shelter Afrique has been restructuring overdue loans by rescheduling such facilities to appear and making them appear as performing, effectively suppressing the volume of toxic mortgages.
“The loans are restructured multiple times to ensure they are not classified as non-performing and are therefore hidden NPLs that are not disclosed,” information sent to the board dated September 8, 2016 says.
Shelter Afrique is also said to be borrowing to pay debt and not to finance new investments or lending, turning it into a pyramid or Ponzi scheme.
Kenyan taxpayers control 10.63 per cent of Shelter Afrique, which is owned by a total of 44 African countries together with the African Development Bank and African Reinsurance.
Housing and Urban Development principal secretary Aidah Munano represents Kenya on the Shelter Afrique board. The PS, however, refused to answer any questions on the alleged irregularities despite the fiduciary duty she owes the taxpayers.
Mr Mugerwa is also accused of presiding over a creative accounting regime that has subdued provisions for bad loans, and refused to provide sufficient impairment for the $4.1 million Shelter Afrique had in the collapsed Chase Bank.
Consulting firm Deloitte has been hired to carry out a forensic audit as well as replace Ernst & Young as Shelter Afrique’s external auditor.
The list of Shelter Afrique’s big debtors includes Nairobi’s Taj Mall, Translakes Estate in Kisumu, Eden Beach Resort in Shanzu, and Oakpark Properties’ Pine City in Athi River.
Consequently, Shelter Afrique has seized 11 apartments at Eden Beach, 17 houses and land belonging to Oak Park under an “asset swap programme” and has classified these properties as “held for sale.”
Mr Mugerwa is further accused of wasteful and questionable spending that has seen him vary by more than three-fold the cost of repairs at his residence, splurging more than €30,000 on house furniture which internal auditors couldn’t trace, making double per diem claims for foreign trips, buying six smartphones in eight months, and arbitrarily sacking junior staff.
The Shelter Afrique boss’ profligate spending is evidenced by the Sh739,010.14 phone bill he incurred in the month of May 2015 for one of his mobile phones, according to a postpaid bill from Safaricom.
Mr Mugerwa — who took office in August 2014 after the acrimonious exit of Alassane Ba — did not respond to questions on the state of the company’s finances.
Ernst & Young, who have been the external auditors at Shelter Afrique for the last five years, also declined to respond to questions of professional misconduct in handling the lender’s books.
Shelter Afrique enjoys diplomatic status and is not regulated by any authority – meaning it has no legal guidelines on capital adequacy, risk management and corporate governance.