Credit reference bureaus cast net wider

Defaulters on Sacco loans and utility bills will be blacklisted alongside borrowers who fail to repay their bank and microfinance debts, locking them out from the credit market.

Wise borrowing from a bank, a micro finance company or a Sacco is often the option most people have for growing a personal or corporate business.

However, some customers have become perpetual defaulters and continue to access money by hopping from one bank or microfinance institution to another to borrow with no intention of paying back. But the days of such people are numbered.

Unlike in the past when only those who defaulted on bank loans were targeted by credit reference bureaus, the rules are changing and the net has been cast wide to rope in even rogue borrowers in microfinance institutions and Saccos.

Usually bank loan defaulters are blacklisted and the information given to credit reference bureaus who store the information for later use.

However, some unscrupulous perpetual borrowers will move from banks to unsuspecting microfinance institutions which have hitherto not had access to the credit reference bureau list.

Blacklists access

According to George Mbira, a General Manager at Rafiki deposit taking microfinance, perpetual bank loan defaulters will soon have nowhere to run to since the regulated microfinance institutions will soon be able to access the blacklists at the credit reference bureaus.

At least 4 million members of microfinance institutions in Kenya will from August have their history on loan borrowing and repayment shared with the commercial banks as part of the efforts to streamline the financial industry services in the country.

“A client recently approached us for a loan only for us to discover that they had pending dents with seven different banks…as a lender , we would have risked our money had we not cross checked his loan repayment history.

"Thank God the law will soon allow us to have access to the credit history of potential clients from the bureaus,” said Mbira.

“Of course, there’s no guarantee that anyone who has defaulted seven times, will pay back the next loan they get meaning anybody who loans them money is taking a big risk,” said Mbira.

Mbira advises borrowers against defaulting on their repayments because the credit reference bureaus are legally mandated to keep the records of defaulters for seven years meaning one cannot get a loan from any financing institution, and you also risk being branded a high risk customer by lenders. If such lenders agree to loan you money, it will come at a much higher interest rate.

“Once you are branded a high risk customer, banks may charge you more because of the risk involved, while borrowers with clean payment history can negotiate to pay lower interest than the going market rates,” says Mbira.

According to Sam Omukoko, the managing director of Metropol, one of the two credit reference bureaus in Kenya, the Finance Act 2012/13 mandates licensed deposit-taking micro finance institutions to join in the sharing of information under the Banking Act and plans are at an advanced stage to rope in Saccos.

The Central Bank of Kenya has already indicated plans are underway to have millions more members of the Savings and Credit Societies (SACCOs) being profiled and their loan repayment history shared to create an all inclusive system where all the lenders in Kenya can share loan repayment history of their borrowers.