CBK spares defaulters from unregulated digital lenders

Central Bank of Kenya has banned unregulated digital and credit only lenders from submitting names of loan defaulters for blacklisting at the Credit Reference Bureaus (CRB).

In a statement, CBK explained that the withdrawal is in response to numerous public complaints about misuse of the Credit Information Sharing System (CIS) by the above-mentioned lenders and particularly poor response to customer response.

“With immediate effect, CBK has withdrawn the approvals granted to unregulated digital (mobile-based) and credit-only lenders as third party credit information providers to CRBs.

The complaints around unregulated lenders last month caught the attention of Kenya’s parliament. Mathare Member of Parliament Antony Oluoch proposed the formation of a House committee to probe illegal and exploitative tendencies with an outlook of stopping their operations.

The MP moreover, wanted the Central Bank of Kenya (CBK) and Communication Authority of Kenya to audit the operations of the digital lending platforms in the country and formulate regulations to govern their conduct.

“Digital borrowing has become a social menace responsible for suicides, divorce, family breakup and increased listing of loan defaulters by the Credit Reference Bureau (CRB),” Mr. Oluoch said in the petition.

On the recommendation of CBK, the Cabinet Secretary for the National Treasury and Planning has also published by Gazette Notice No. 3096 of April 8, 2020, the suspension for six months, the listing of negative credit information for borrowers whose loans were performing previously but have become non-performing from April 1, 2020.

“Consequently, loans that fall in arrears from April 1 to September 30, 2020, will not lead to the “blacklisting” of the borrower on the CRBs. This is one of the emergency measures that were announced on March 25, 2020, in light of the exceptional circumstances from the Coronavirus pandemic and aiming to shield borrowers from the adverse impact.”

In the same statement, CBK also announced other revised regulations and reforms that have been developed through a consultative process since 2018, and are intended to “strengthen Kenya’s Credit Information Sharing System (CIS) that has been operational since 2010.”

The reforms include a minimum threshold of negative credit information that should be submitted to lenders, which has been set to Sh1,000. Borrower’s information regarding non- performing loans of less than Sh1,000 will therefore not be submitted to CRBs, and borrowers that were previously “blacklisted” only for amounts less than Sh1,000 will be “delisted.”

First-time CRB clearance certificates will also be provided by CRBs at no charge, unlike in the recent past where it would cost Sh2200 to get the clearance certificate. This will particularly be beneficial to Kenyan youth and graduates who are seeking employment.

SACCO societies regulated by the Sacco Societies Regulatory Authority (SASRA) have also now been included as authorized subscribers of credit data to CRBs. These SACCOs will now submit borrowers’ information to CRBs and also receive credit reports directly from them.