Friday, October 10, 2008

Creative Financing

“So how much do you want the bill of sale made out for?” The year was 1982, and Kathy & I were buying our first car together. The question came from the owner of the used vehicle we were buying. We must have looked a little clueless because he continued: “I can make it out for less than the sale price if you want. That way, you’ll pay less tax on it.” This was our first encounter with creative financing, but certainly not our last. (FYI, we opted to stay on the straight and narrow, and had the bill made out for the price for which we were actually buying the car).

We ran into it again when we arrived in Burkina. After purchasing some supplies at a hardware place, I asked for a receipt so that I could remember to note the expense in my personal financial records later. “So how much do you want the bill made out for?” asked the proprietor.

This was my introduction to a whole vast system of creative financing here. However, unlike the form we encountered in Canada, which was designed to save you money, the Burkina form was designed to make you money. Organizational employees and purchasing agents often use this method to help supplement their salaries and make ends meet or, having met them, to help increase their personal net worth. Upon purchasing equipment, parts, or supplies, the buyer and seller will agreed upon an increased figure to put on the bill, which will then be submitted to the organizational finance office as proof of expenditure. And typically, the buyer and seller will split the difference between the real price of the purchase and the amount paid for it according to the bill.

So let’s say that André is sent by his employer to go and buy some auto parts needed to repair a vehicle used by the company or organization he works for. Not sure how much they will cost, his boss gives him a float of 150,000 FCFA to do it. André goes out and negotiates to buy the necessary auto parts for 80,000 FCFA (most prices are negotiable rather than fixed in Burkina). He and the seller then agree to put 100,000 FCFA on the bill. André pays 100,000 FCFA for the parts from the float money. The 20,000 FCFA difference gets split between him and the seller, both of whom put 10,000 FCFA in their pockets. André returns to his employer with the parts, presents the bill for 100,000 FCFA, and hands back the 50,000 FCFA left of the float money.

A variation on this theme was explained to me by my mechanic friend, Zana. Employees responsible for their organization’s fleet of vehicles will search out mechanics or garages with whom they can make a creative financing deal (whether they are actually competent to properly maintain and repair the vehicles is irrelevant; shoddy work means more return business… at least for a while). They promise to bring all their organization’s vehicles to a particular garage, provided that they get a certain percentage of kickback money. In fact, some mechanics and garages actively solicit people with whom they can make these kind of deals, offering a cash reward up front for a definite contract. Zana said he’s lost business because he’s refused to cut such deals.

Most people in Burkina who engage in such creative financing consider this to be an acceptable avenue of income supplementation. It’s only wrong if you get caught! :)

Here’s a question for you: If you were sending someone out to buy stuff for you here, what steps could you take to avoid this happening? What would you do to ensure that you’re not paying an inflated price for goods? Or would you bother? (Okay, I know that’s three questions, but you know what I mean; work with me here!) Looking forward to your ideas!

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