CRB reforms lined up to ease credit cost for small businesses

A customer is served at a bank branch. FILE PHOTO | NMG

The new administration has announced plans to reform the credit information sharing system in a bid to lower the cost of loans for micro and small businesses.

President William Ruto said the reforms will aim at gradually moving away from the negative listing of loan defaulters.

“Our starting point is to shift the credit reference bureau (CRB) framework from its current practice of arbitrary, punitive and all-or-nothing blacklisting of borrowers, which denies borrowers credit,” Dr Ruto said in his inauguration speech on Tuesday.

“We will work with credit reference bureaus on a new system of credit score rating that provides borrowers with an opportunity to manage their creditworthiness.”

This comes days to the end of the year-long suspension of negative listing of defaulters of up to Sh5 million by the administration of former President Uhuru Kenyatta.

The relief period for such defaulters ends on September 30. Lenders say the directive suspending reporting of defaults on loans has hampered the rollout of the differentiated lending framework on mass market loans due to the inability to use the credit reporting system.

“Our main concern has been on how to manage the risk profiles of our customers when we are blind-sided by the lack of additional non-banking data,” Chiera Waithaka, the chief risk officer at Absa Bank Kenya, said in early August.

The directive, while protecting current defaulters, has slowed down lending, especially for individuals and small enterprises which are seen as riskier compared to large companies.

Data from the CRBs showed last year a third of Kenyan loan accounts are negatively listed as defaulted in an economy struggling to create jobs for the growing number of skilled youth who have found themselves in a debt trap.

The bulk of the new listings are for mobile digital loans despite the government having frozen the blacklisting of defaulted loans below Sh1,000 from April to December last year.

The rising number of blacklisted loan accounts has jeopardised the chances of millions of Kenyans being able to borrow more to grow their businesses or for projects.

“Financial inclusion and access to credit are critical in addressing the fundamental factors of the cost of living, job creation and people’s well-being,” Dr Ruto said. “We shall take measures to drive down the cost of credit.”

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