Poor Kenyans Lose Sh7 Billion in School Fees, Loan Scheme

Police are investigating a dubious investment scheme through which poor families may have lost more than Sh7 billion on expectations that their children would be educated for a token.

The Criminal Investigation Department (CID) said it was looking into the transactions of Mizpah Outlets Welfare Association, which also promised members huge returns of up to 50 per cent of their capital.

“We are progressing with the investigation as it involves a lot of people across the country. We hope to have finished in two weeks and after that forward the case to the Director of Public Prosecution. The figure is about seven billion,” said Ndegwa Muhoro, the CID director.

No arrests have been made so far.

Mizpah Outlets is registered under the Societies Act with certificate of registration number 28606 and a S.K. Wanuthua as a director. An Alice Ngigi is said to be in charge of the Nairobi region.

When the Business Daily called Mr Wanuthua’s mobile number, Ms Ngigi answered the phone, but declined to give details of the organisation and its activities.

“What do they want? I must know who they are (the complainants). Let them raise the office and then we will address them,” said Ms Ngigi.

She, however, declined to disclose where the office was while also seeking to disassociate herself with Mizpah management. Mr Muhoro said complaints had come from across the country including Nairobi, Kakamega, Homa Bay, Naivasha and Mombasa.

Documents shows that to be a member one was required to pay a registration fee of Sh720 and a monthly fee of Sh120 for each child either in primary or secondary school to facilitate payment of the fees directly to the school.

Those joining the investment club had to pay a minimum deposit of Sh12,000. The money made the member eligible for a loan equivalent to three times the deposit paid.

However, the loan was not disbursed in cash but was reinvested in the company’s activities including distilled water, broiler chicken, pre-packed potatoes and honey ostensibly produced by the group for export.

The loan was to be repaid in ten monthly instalments together with taxes and minimal interest and deducted from the businesses’ returns.

According to the association’s price list, Mizpah would buy a packet of honey at Sh280 for resale at Sh320, a one-litre bottle of water at Sh25 for resale at Sh40 and a five-kilogramme packet at Sh100 and sold at Sh130.

From the figures, it is not clear how the association pitched its trade to prospective investors with margins of between 15 and 60 per cent to make them believe that it could pay a return of nearly five times irrespective of the terms of repayment.

Members who have burnt their fingers, however, say Mizpah won public confidence by masquerading as a government trustee for issuing interest-free loans to small businesses and recruiting members through churches.

James Opondo, who lives in Kibera, Nairobi, deposited Sh50,000 in the association and was advanced Sh150,000 for reinvestment which meant a return of Sh45,967 per month, according to correspondence between him and the association.

Out of the returns, Sh15,000 was to be deducted for loan repayment and Sh7,500 for tax payment and interest per delivery, leaving him with Sh23,467 as his income from the venture.

After depositing the money in November 2011, Mr Opondo was slotted to start receiving the monthly dividend six months later in May 2012. He only received one instalment in July 2012.

Others such as Selinah Kesi who had deposited Sh100,000 and Evalyn Mogeni whose husband took Sh50,000 to the “project” are yet to receive a single payment. In communications through local leaders, the dubious association said an “ongoing audit” had delayed the payments.

Mr Opondo had also enrolled two of his children — one in Form Three and the other in Standard Eight — for the fees scheme.

“None of them has received the promised free education,” said Mr Opondo. One child had to repeat Standard Eight last year after the father, who said he is a labourer, failed to secure his school fees.

Those interviewed by the Business Daily said they did not know of any child whose school fees had been paid for by the association.

Mizpah promoters had divided the country into eight regions which were further sub-divided into cells. The cell in Kibera headed by a local pastor, George Onkoba, had over 3,000 members.

Out of the cell membership 29 “investors” had put in Sh1.6 million into the questionable scheme.

The association has changed its bankers twice from Family to Equity and then to Co-op Bank while telling its members that this was in line with regulatory requirements.

“Following the guidelines issued by the Central Bank of Kenya and advice given by our bankers we are writing to notify you that we are changing the mandate of Mizpah account with effect from July 1, 2012, as we prepare for the annual general meeting,” read one of the notices sent out to local leaders.

However, Mr Wanuthua sent a notice cancelling the meeting scheduled for November last year saying “the Ministry of Internal Security has advised us not to conduct meetings without proper security.”

Mr Onkoba said that he had never been to the association’s offices which were said to be off Thika Road. He said he used to report to the Makadara office which would in turn report to the head office.

“This organisation was introduced to us at church, and due to their policies we took the initiative to register men, women and children,” he said. He had invested Sh102,000.

George Osoro, a pastor in South B, together with some members of his flock were also duped by the association. He says he once tried to visit the association’s offices to pursue delays in payments.

Despite having a regional representative for a guide, he ended up being taken round the Kenyatta University area in vain.

According to its website, www.mizpahassociation.com, the association is run by Mizpah National Executive Council whose members are drawn from the 12 regions set up in Kenya.

Under the council, there are 12 committees to oversee the running of the association.

“We have a place of purpose for investment called Mizpah Enterprises where willing investors are taught and shown how their money can work for them; to passionately live according to Gods’ will; to multiply and take dominion in the midst of challenges. We create wealth not riches,” the website exhorts.

Last year, Parliament passed a law making the promotion of pyramid schemes an offence punishable by an imprisonment for 10 years.

The Bill was in reaction to losses estimated at Sh7.4 billion that Kenyans suffered between 2004 and 2006 to dubious investment schemes which promised abnormally high returns.

 - Business Daily Africa