Enterprise

How credit bureaus are breaking the pot to kill a snake

loan
murori

Summary

  • The rate at which lenders are rushing to credit reference bureaus (CRBs) to blacklist loan defaulters, without looking at the borrower’s circumstances, is quite alarming.
  • With 14 million Kenyans currently blacklisted for defaulting on loans it is right time for policy makers to relook into the efficacy of CRBs.
  • In my community we have a saying that you don’t break the pot to kill the snake inside.

Last week, Mr Waraho, an avid reader of this column narrated to me his tribulations after he was backlisted by Credit Reference Bureau. He is stuck and cannot get a loan from any bank or sacco to salvage his business.

Indeed, the rate at which lenders are rushing to credit reference bureaus (CRBs) to blacklist loan defaulters, without looking at the borrower’s circumstances, is quite alarming.

With 14 million Kenyans currently blacklisted for defaulting on loans it is right time for policy makers to relook into the efficacy of CRBs.

In my community we have a saying that you don’t break the pot to kill the snake inside.

CRBs were established to monitor the behaviour of borrowers with the objective of enabling credit providers to overcome the challenge of non-performing loans and reduce risk of loan default. They are also expected to provide lenders with borrowers’ history so that those with good credit record can access loans easily at cheaper rates than those with not so good history.

According to the regulator, Central Bank of Kenya CRBs, “seek to enhance consumer protection for borrowers, expand the sources of information and ensure the sustainability of the credit information sharing as a key tool to bridge the information gap about the borrower’s creditworthiness”

However, as it is now it is in doubt whether this noble objective is beneficial to the consumer when lenders seem to be punishing borrowers at the slightest provocation. According to the vistims, CRBs are making unliteral decision of blacklisting a defaulter once they are signalled by the lender without giving the borrower a fair audience. The assumption here is that the borrower is on the wrong side of the law and must be punished by being blacklisted so as not to access loan from any other lender.

It is good to note that majority of the people blacklisted today are in dire need of financial services to revive their firms and locking them out of credit is neither helping the lenders nor the economy.

Where the lender had done due diligence in lending money to the borrow, the event of a default is as a result of economic challenge and not a criminal activity. In fact, the distressed borrower many still have the same good character and goodwill and may need small push to get back on foot.

I have a feeling that out of the 14 million loan defaulters blacklisted there is a good number that can recover pretty fast if they can get a lender to believe in them. Of course, there are few frauds who borrow with intention of not paying back. In this case we should not punish the entire generation because of few misfits.

Income from interest charged on loans is one of the major sources of profit for financial institutions, while loans are a core engine of economic development. The simple act of blacklisting so many people from accessing credit ostensibly to force them to pay is causing more harm than good. It is akin to breaking the pot to kill as snake hiding inside it.

Mr Kiunga is a business trainer and the author of ‘The Art of Entrepreneurship: Strategies to Succeed in a Competitive Market’.