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Credit bureaus to list sacco loan defaulters as new law takes effect

Metropol Credit Reference Bureau managing director Sam Omukoko. PHOTO | FILE
Metropol Credit Reference Bureau managing director Sam Omukoko. PHOTO | FILE 

Defaulting on a sacco loan will beginning early this week land you in trouble as the co-operatives are included in the credit sharing system following change in the law.

Saccos have until now been sharing names of own loan defaulters with credit reference bureaus (CRBs), but they have not had access to the records of bad borrowers since the law allowed only banks to view the information. Kenya has three CRBs. They are Creditinfo CRB, Metropol CRB and Transunion CRB.

Failure to pay power, water and telephone bills will also see one listed as a defaulter at the credit reference bureaus, with far reaching implications on access to loans.

This follows the coming into effect on Sunday of amendments to the Finance Act 2016, which allows power, water and telcos to refer defaulters to credit reference bureaus.
The Act also allows lenders, utility firms and credit reference bureaus to share borrower information with their counterparts in the East African region.

The motive is to deny or issue costlier loans to borrowers based on their credit paying history.

More scrutiny is, however, expected for the organisations to ensure they capture the correct information as some banks and credit reference bureaus have in the past been on the spot for misusing the system by sharing erroneous information or failing to provide up to date information even where defaulters pay up.

Stakeholders had mid last year termed the inclusion of utility companies such as Kenya Power, water firms, mobile operators and pay­-TV service providers in credit sharing as a game changer saying it would boost the platform by providing a true picture of the prospective borrowers.

“The history of paying utility bills, like telephone, cable, electricity, or water, when they go in someone’s credit report would really be useful in providing the creditworthiness of prospective borrowers and giving a correct credit score,” said Metropol Credit Reference Bureau managing director Sam Omukoko in June.

“For us to start going in this direction, however, we need to have bills such as that of electricity in the name of individuals and not landlords.”

According to Treasury secretary Henry Rotich, the credit information sharing (CIS) framework in Kenya has continued to develop and increase its coverage due to facilitative reforms put in place over the years.

“Indeed, the expansion of the CIS framework was one of the key factors behind the improvement in Kenya’s ranking in the World Bank Ease of Doing Business indicators 2016.

“Apart from the obvious benefits to the borrowers who maintain good credit history and to lenders who are able to get information on potential borrowers, the CIS regime is important to the economy as a whole in terms of increasing access to credit, reducing transaction costs, enhancing efficiency in financial intermediation and fostering financial sector stability through reduction in non­performing loans,” said Mr Rotich mid last year when he proposed the amendments.

Some saccos said they were keenly awaiting for the law to come into effect.

“This is a huge boost for us in gauging the credit worthiness of a prospective borrower,” said Nation Sacco chairman Peter Munaita.

The Credit Information Sharing Association of Kenya chief executive Jared Getenga earlier said cross border information sharing as well as allowing saccos and the utility companies to exchange information would boost the credit sharing system.

There are 184 licensed saccos in the country with deposits worth Sh205 billion and a total loan book of Sh228 billion.

Non­-performing loans held by the saccos add up to an estimated Sh15 billion, indicating the bulk of borrowers have good records.

Bad loans in the banking sector are, however, at a decade­ high Sh170 billion, indicating that the defaulters could be shifting to the sacco sector.

The sharing of positive information by saccos would further put pressure on lending institutions to reward good borrowers instead of using CRB reports to merely blacklist defaulters.

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