Respite for CRB-listed defaulters owing Sh5m by October 1

The Central Bank of Kenya has suspended the listing of negative credit information for borrowers with loans below Sh5 million for 12 months.

The loans must have become non-performing from October 1, 2021.

Consequently, the loans below Sh5 million that fall in arrears from October 1, 2021, to September 30, 2022, will not lead to the blacklisting of the borrower on the Credit Reference Bureaus (CRBs).

This is one of the intervention measures announced on October 20, in light of the exceptional circumstances from the Covid-19 pandemic.

A good credit record demonstrates the borrower’s higher creditworthiness and should lead to a lower cost of credit.

In this regard, the suspension could adversely impact the provision of credit by banks to the target group, as they will be unable to distinguish between the good and bad borrowers during the suspension period.

This could lead to rationing of credit, as was evident during the period of interest rate caps from 2016-2019.

Over the last decade, Kenya has developed a robust Credit Information Sharing (CIS) mechanism for the banking sector.

The mechanism has facilitated the development of a credit history for Kenyans to enable them to access cheaper credit.

This is important for borrowers who do not have collateral such as title deeds that have traditionally been used to secure credit.

The framework has been strengthened over time, most recently in April 2020, with the issuance of revised regulations.

CRBs are now required to generate borrowers’ credit scores that lenders can use to assess their creditworthiness.

An important development was the suspension of the sharing of negative information for a period of six months from April 1 to September 30, 2020, to mitigate the economic impact of the Covid-19 pandemic.

Accordingly, CBK recommended a threshold of a loan amount of Sh5 million and below, that will capture the targeted MSMEs. CBK urged borrowers to fulfil their contractual obligations on a timely basis and engage their lenders in case of concerns.

The directive, which is part of President Kenyatta’s 13-point stimulus programme announced yesterday, offers a reprieve to the many small businesses struggling to recover from coronavirus-induced economic disruption.

“The relevant authorities will, for loans less than Sh5 million, effect a moratorium of listing in CRBs for 12 months to the end September 2022,” said the president.

The moratorium is likely to rattle banks that rely on CRB reports to prompt borrowers to repay loans.

The latest lending survey by Central Bank of Kenya (CBK) shows there were 915,115 active MSME loan accounts in the banking industry as of December last year, with a total value of Sh638.3 billion.

About a fifth or 204,802 MSME accounts valued at Sh98.7 billion were classified as non-performing—an equivalent of 22 per cent of total loan defaults in the banking industry.