CBK directive frees 13 million loan defaulters

CBK Governor, Patrick Njoroge.

?There are 13 million Kenyans who have been blacklisted at the Credit Reference Bureaus (CRBs) for defaulting on loans of less than Sh1,000.

Central Bank of Kenya (CBK) Governor Patrick Njoroge says such trifling sums have been a source of major economic crisis in the country, including the curse of youth unemployment.

Young people straight from college have been denied loans to start or grow their own businesses after failing to pay back loans of less than Sh1,000 that they might have borrowed from digital lenders.

Others have missed out on job opportunities as employers insist on credit reference bureau (CRB) clearance certificates as one of the condition for employment.

In an opinion article in The Standard, Dr Njoroge, who recently ordered the delisting of borrowers blacklisted for amounts of less than Sh1,000, decries the misuse of the credit information sharing (CIS) system by some financial service providers.

“The CIS has not worked as expected, requiring a refresh. For instance, it was seen as a punitive ‘blacklisting’ tool that bars Kenyans from getting loans, instead of helping borrowers take advantage of their credit history to get better pricing of loans,” he says in the article.

There are 378 million records held by CRBs, according to CBK, of which 42 million are blacklisted. Of these, 13 million are blacklisted for amounts less than Sh1,000. Unregulated digital lenders and credit-only microfinance institutions were prohibited from using CIS, with CBK alluding that they had not used the system as a credit-scoring tool but to deny borrowers loans.

Following the new regulations, a key elements include delisting of more than five million unique borrowers comprising more than one-third of the borrowers in CRBs—that were “blacklisted” for amounts less than Sh1,000. “First, the new Regulations set a minimum threshold of Sh1,000 for negative credit information that is submitted to CRBs by lenders. Thus, borrower’s information regarding non-performing loans below that threshold will not be submitted to CRBs,” explained he Governor

There have been complaints that whereas financial providers have been quick to punish those with poor credit scores by denying them loans, they have not similarly rewarded the good scorers with reduced interest rates, for instance.

CBK introduced the additional measures on credit information sharing following a directive by President Uhuru Kenyatta to suspend the listing of defaulters as the government moves to cushion Kenyans from the adverse impact of the coronavirus pandemic.

The listing of borrowers whose loans were performing previously but have become non-performing from April 1, 2020 has already been suspended for a period of six months from April 8.

The new measures are a huge relief for thousands of Kenyans listed for small amounts, some of which were ledger fees on their accounts that they did not even know about.

“First-time clearance certificates will be provided by CRBs at no charge. This is particularly beneficial to Kenyan youth and graduates who are seeking employment,” said CBK.

The barring of unregulated credit providers from using the CIS, analysts have noted, might sound a death knell to the dozens of mobile lending apps that have come to dominate the micro-credit industry.

However, the firms, under the Digital Lenders Association of Kenya, have hinted that they are open to regulations.  

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