CRB mechanism should be reviewed

In 2013, Parliament amended the Banking Act and Micro-Finance Act to establish a nationwide consumer credit reporting system. The law basically established credit reference bureaus to collect and assemble a business or individual consumer’s credit information for use by lenders, insurance companies, employers, and other entities in making decisions affecting a consumer’s eligibility for credit, employment and other purposes.

To further the growth of an economy’s credit market, credit reporting was needed because an efficient functioning credit reporting promotes consumer access to credit and efficiency of the national banking and consumer credit systems.

Now, whilst the intention of establishing credit reporting was to the benefit of financial consumer and credit industry, our framework has failed to live up to that expectation.

First, this failure is due to poor enforcement of the law when it comes to credit reporting by institutions. According to a 2016 survey conducted by Transunion credit reference bureau, 316,455 Kenyans in a group of 600,000 cases had been negatively listed for outstanding balances of less than Sh100 due to mobile loans.If these individuals were informed prior to being negatively listed that failure to settle their less than Sh100 would see them blacklisted, almost all of them would have settled their outstanding amount, drastically shrinking that growing number of defaulters.

So, when the lawmakers were drafting the Credit Reference Bureau Regulation 2013, they saw this unfair practice coming and made a consumer protection provision that an institution should notify the customer within one month before a loan becomes non-performing that the institution shall submit to a Bureau the information on the loan.

So far, institutions submitting information on their customers are not notifying them about their intention to negatively list them, which is in complete contravention to the credit reporting laws.

Second, there is gross misuse of credit reference information by lenders who seek credit reports on their potential borrowersIdeally, consumer credit information should be used by lenders and other users to predict the risk of future nonpayment, default, or other adverse events since the report includes consumers’ credit history and payment patterns.

But lenders are only doing yes/no checks on whether a potential borrower is negatively listed then go ahead to deny them credit financing cutting a big number of Kenyans out of credit market.

READ: Misuse of credit rating barring access to loans

Commercial Banks have been implicated as the big culprits in this malpractice that has seen the regulator Central Bank of Kenya put on notice but the malpractice is still going on.Now, if we are to forecast the future of Kenya’s credit market, there is an oncoming crisis ahead.

Recent data shows that due to the high uptake of mobile loans default rates have also gone up and more than half a million Kenyans have now been blacklisted on the credit reference bureau.

Since many credit financiers are simply checking whether a potential borrower is blacklisted or not, this means more than half a million Kenyans are locked out of the credit market and the number will be growing bigger

This was not what credit information sharing introduced seven years ago was intended for. So, there is need to re-evaluate our credit information sharing framework with more emphasis going to the need for fair credit reporting.

The fact that accuracy in consumer credit reporting is fundamental to a consumer’s access to credit as well as other services and opportunities, there is need to impose substantive duties on the companies that participate in credit reporting to maintain accurate information and implement a framework that consumers can use to correct errors and also launch complaints on unfair reporting.

Also, there is need to prevent misuse of sensitive consumer information as well as privacy of consumer’s personal and financial information