Listen to CBK warning on CRB freeze

The government is seeking to literally administer euthanasia to the only three credit reference bureaus (CRBs) we have in the country.

If the decision to suspend the listing of defaulters on loans below Sh5 million is not reversed we will have killed TransUnion Ltd, Metropol Corporation and Creditinfo Ltd.

How things evolve will depend on the outcome of a court case where a group of public-spirited citizens challenged the constitutionality of the policy decision.

But looked at against the backdrop of the need for a predictable policy environment for businesses, this saga is but the latest manifestation of the dysfunctional state of economic policy-making and the growing preponderance of policy errors within this administration.

Why are we ignoring the caution and views of the regulator and the body that regulates CRBs -- Central Bank of Kenya (CBK) -- on this matter? Indeed, in terms of domain knowledge and experience on the subject matter, what the central bank is saying is what should guide President Uhuru Kenyatta on this matter.

Here is a quote from the statement by the CBK: "The suspension could adversely impact the provision of credit by banks to the largest group, as they will be unable to distinguish between good and bad borrowers during the suspension period."

It went on: "This could lead to rationing of credit as was evident during the period of the interest rate caps from 2016 to 2019."

In a nutshell, what the central bank is telling the Treasury that published the controversial gazette notice is the following: You are the ultimate authority over the financial sector and have powers to direct me to implement the gazette notice. But the policy you want implemented is wrong-headed and erroneous. Period.

Thus, what is playing out is a situation where the right-hand does not agree with what the left hand is doing. We are slowly but gradually breaking the CRB business model. We cannot fault the President for seeking to shield small borrowers from the impact of Covid-19.

But must we swallow what he says, root and branch, even in the face of clear evidence that what he is saying is going to end up creating confusion and disruption in our credit markets? Can’t we see that we risk undermining a framework for exchanging credit information that has been working fairly well since 2010?

The President needs to be advised that what he is suggesting is bound to be counterproductive and defeat the good intentions he had in mind.

For businesses to thrive, you need predictable laws and policies. But consider the toing and froing that has happened in this space in just under one year. In April last year, the government temporarily suspended CRB listing of a category of defaulters.

During this year’s Mashujaa Day celebrations, he announced the suspension of listing of yet another category of defaulters. This whimsical and capricious change of policy is taking us to a situation where credit information sharing will no longer be meaningful.

The information CRBs make available -- from a borrowers' total number of current loans, repayment history, previous bankruptcies -- is what allows lenders to extend greater credit at more favourable interest rates.

Credit information sharing helps lenders better predict borrower default. And experience has shown that default rates will decrease when more information is available on the borrower.

Indeed, credit information sharing is what has allowed loans to be extended to safe borrowers who had been previously priced out of the market, resulting in higher aggregate lending in the economy.

In terms of access to credit to the small borrowers and SMEs, what we are doing may end up being counterproductive. Have we looked at the recently published numbers by Safaricom on the daily turnover of Fuliza? We forget that the only collateral that allows Wanjiku to borrow from Fuliza is information.

When you lock out SMEs from the credit information sharing system, are you really helping them?