How Kenyan lenders frustrate borrowers with good credit listing

Rejected loan application

Banks are using information about their clients from Credit Reference Bureaus (CRBs) wrongly when deciding on whether to approve their loans or not.

The lenders are only asking for data about clients who have defaulted on loans, and are quick to blacklist them but ignore information about those quick to repay their loans, and earned a good credit rating.

As a result, most bank customers who have a very good credit listing are being erroneously locked out from some good finance products by banks, since the lenders did not care to check how well the CRBs have rated them. This is according to one of the country’s CRBs Transunion Limited.

Transunion Chief Executive Officer Billy Owino explained in an interview last week that in the last one year, Kenyans who used to default on loans have improved hugely in their repayment. Majority are also eager to keep checking their records in CRBs so that they can be quick to get themselves off the disgraceful sheath of negative listing.

Data from Transunion also revealed that in the last one year, only 12 per cent of Kenyans with bank loan balances remain blacklisted in CRBs across the country, down from 26 per cent.

“We have seen the number of people who were blacklisted go significantly down in the last one year. Today, a whole 88 per cent of people who had issues with CRBs are actively repaying their loans and have raked in a good rating. But banks are continuing to ignore them and lock them out of their loan books,” said Mr Owino.

“When we talk to some of these lenders, they say that the tight regulatory environment, especially with the interest rate cap, cannot give them the luxury of advancing loans simply because a client’s credit rating has improved.”

Owino also explained that Small and Medium Enterprises (SMEs) are the biggest casualties since many are struggling to improve their credit ratings by servicing their loan balances but banks keep ignoring them.