Loan defaulters face blacklisting as Uhuru CRB freeze ends

Banks and Saccos will from Saturday start listing thousands of loan defaulters with credit reference bureaus (CRBs) following the expiry on Friday of the freeze announced by retired President Uhuru Kenyatta for blacklisting borrowers of unpaid credit.

The credit providers will be free to list the defaulters with Kenya's three CRBs - Metropol, TransUnion and Creditinfo International - jeopardising the chances of thousands of defaulters being able to borrow more.

This comes as the new administration and sector players plan to review the architecture of the credit scoring, which critics argue punishes borrowers.

President William Ruto said recently that his government will start reviewing the CRB rating formula.

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He said the review will allow introduction of a new mechanism that lists borrowers based on their compliance ability and not the general perception that "most of them are defaulters".

"Next week, we are going to rework the whole credit rating system. The current one is an all-or-nothing system; you're either listed as a defaulter or not," the President said in an interview with Al-Jazeera last week.

"There are some 15 million people listed in the CRB. We'll keep the credit reference bureaus, but change the scoring mechanism so that it's not all-or-nothing."

He said the review would be comprehensive and long-term.

CRBs on Wednesday backed the reforms, which will see borrowers assigned a credit score or a number that rates their credit risk.

The score will then help creditors determine whether to give one credit or decide the terms they offer, or the interest rate they pay.

Having a high score could, for instance, make it easier for a borrower to get a loan at a better rate.

The credit companies will calculate one's credit score using information from a borrower's credit report.

The information that will affect one's score will include payment history, outstanding balances and length of credit history.

"We want to enter into a regime where there is nothing like blacklisting of a customer," Metropol Managing Director Sam Omukoko told The Standard. "The space for the customer has become better."

Credit Information Sharing Association of Kenya Chief Executive Jared Getenga said enforcing an effective scoring system will be "very good for the credit market" to ensure lower risk customers access credit on more favourable terms.

"It's a (very good direction)," he said of the planned reforms. "Guidance will be given by the government." Mr Kenyatta in September last year announced the moratorium on negative listing of borrowers with loans below Sh5 million with CRBs for a year, cutting credit information sharing in the banking sector.

The suspension was part of the measures to cushion borrowers during the Covid-19 pandemic.

It was the second since Kenya reported the first case of Covid-19 in 2020 as the State moved to protect households and businesses from being locked out of credit.

The move offered relief by restricting banks from using defaulters' data to deny borrowers additional loans to grow their businesses or for projects.

The lifting of the freeze now comes as a relief for lenders, who earlier said lack of credit reference information could contribute to soaring costs of loans and stall lending to businesses due to incomplete borrowers' information.

A majority of the negative listings are for loans disbursed through mobile phones, earlier data showed.

The Covid-19 pandemic, which led to job cuts and near-stagnant wages, left thousands of people in a debt trap. The lifting of the freeze comes as the banking sector is struggling with mounting unpaid loans.