Treasury approves blacklisting Sacco loans defaulters

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.

Finance minister Njeru Githae has proposed amendments to the Banking Act to allow sharing of information on credit defaulters among commercial banks, Savings and Credit Cooperatives (Saccos) and public utility companies.

The Banking Act currently limits the circulation of data stored by licensed credit reference bureaus (CRBs) to banks and deposit-taking micro-finance institutions.

“We will expand credit information sharing mechanism to include various credit providers beyond banks such as credit only microfinance institutions and Saccos,” said Mr Githae in his Thursday budget statement.

There are 215 Saccos registered with the Savings Societies Regulatory Authority (Sasra) with a total asset base of Sh172 billion and total outstanding loans of Sh123.3 billion.

In total, however, there are over 3,000 Saccos whose asset base and outstanding loans is much higher than those under Sasra’s regulation.

Casting the net wider for loan defaulters will improve stability of the financial sector and enhance credit risk management in the country, the minister said.
Public utility companies that will be expected to submit information to the CRBs include Kenya Power, local government councils and water service boards.

Water companies are heavily burdened by a mountain of unpaid bills, with Nairobi Water Company facing bad debts in excess of Sh3 billion.

The Nairobi City Council has had difficulties footing its wage bill due to mounting defaulters for rates and other service bills. Kenya Power has electricity bills worth more than Sh2.6 billion outstanding for over three months.

Credit reference bureaus said that inclusion of more loan providers and utility firms will help them generate more detailed credit rating reports about individuals for use by the lenders during appraisal of loan applications.

The exclusion of Saccos and micro financiers from the credit defaulters’ pool had disadvantaged the institutions as borrowers who had bad loans could turn to them without the risk of detection.

The Sacco Societies Act and the Micro-finance Act will, however, have to be amended also so as to allow sharing of information across the financial sector. Currently, the regulations only allow information sharing among peers in the different financial categories.

There are over 40 credit only microfinance institutions. The Saccos are estimated to have lent out to over 1.9 million people while banks have two million loan accounts.

The credit bureaus said that they had enough capacity to handle the data but need to use a common template for submission of information.

It requires a robust software system to compile data on creditors and share it on the reference platform, a requirement that could pose a challenge to some microfinance institutions.