‘CRB should stop listing individuals over Ksh.100 debt ’- Olaka
Commercial banks have welcomed the ongoing conversation to review the law governing Credit Referencing Bureaus (CRBs), highlighting on gross inconsistencies to credit reporting.
This even as public discourse on the conduct of the entities involved in the disclosure of credit information remains sustained.
Belgut Member of Parliament Nelson Koech has for instance initiated the process of scrapping the law with the centre of his dissatisfaction being the unfair treatment of defaulters which in instances incorporates the sharing of credit information with non-signatory parties.
The use of the referencing bureaus have come under the microscope as lenders blacklist borrowers for the most negligible of sums outstanding.
The reporting have for instance had no distinction between the default of Ksh.1 billion and that of Ksh.100.
However, according to Kenya Bankers Association (KBA) Chief Executive Officer Habil Olaka, individuals are being listed for effectively non-credit transactions where there are minor charges on accounts that wound up in CRB databases.
“A person’s record should not be blackened for a charge of Ksh.100. The fact that someone’s name has an outstanding charge of Ksh.100 should not be used by a credit appraiser to label a borrower as a bad debtor”
“A charge of Ksh.100 could essentially be an error where the customer may not have been aware of a penalty or charge that went through their account. It could so be a misunderstanding of how financial providers use available credit information,” he added.
While Belgut MP Nelson Koech seeks for ammendments to determine the credit worthiness of borrowers through a score basis, the very suggested provision does exist under current the current CRB legislation.
The existing methodology for instance provides for a points tally to 900 to provide for a distinction between good and bad borrowers.
Financial services providers have however ignored the scoring methodology to prioritize on the tiniest of defaults to potentially taint credit referencing bureaus as black lists.
According to a 2016 survey by the Transunion, 14.8 percent of Kenyans reported to a credit bureau with a negative listing for a late payment were for outstanding balances of less than Ksh.200.
“We are yet to reach a point of appreciating credit scoring. A majority of local lenders do not necessary care for consumer credit scores and only want to find out whether a potential borrower is listed or not,” Metropol Business Development Manager Christopher Arunga put lenders on the spot in an earlier interview with Citizen Digital.
Even as the debate on referencing bureaus rages on, Habil Olaka advocates for the adjustments of the credit reporting mechanism rather than a complete repeal of the bureaus noting the very reason the entities came to be.
Credit Referencing Bureaus were first introduced in Kenya in the 90’s following a major collapse of banks which was fuelled in great part by a sharp increase in non-performing loans with the proportion of the bad loans growing by an average of 16.5 percent between 1996 and 1999.
Unfortunately, history has judged the entities harshly as they began as mere black listing sites, an attribute that is still misconstrued as fact by many of the stakeholders in the finance space today to include both commercial lenders and their customers.
To correct the misalignment in the referencing of borrowers and information sharing from the credit bureaus, stakeholders in finance have backed the creation of standalone Credit Act to act as the designated regulator for the operations of the credit bureaus.
Central Bank Governor Patrick Njoroge has previously raised similar sentiments backing the creation of a central server to facilitate the submission of client-credit information.
Habil Olaka expects the adjustment in the provisions of credit bureaus to usher in the factoring of credit scores in the issuance of credit to customers by financial institutions.
“The spirit of the CRB framework was to be positive where we should take pride in the available information. In any case, 95 percent of borrowers are good, the defaulters only make for a small minority. The majority are supposed to be reaping benefits from the framework,” he said.
The scrutiny of CRBs is expected to hold well into the future, this as the rate of loan defaulting remains on the rise driven primarily by the proliferation of easy digital loans.
According to Metropol Chief Executive Officer Samuel Omukoko, the average Kenyan now has six credit accounts pointing to the rising risk of debt default.
Digital lending has however been the revelation to financial inclusion to avail credit to the formerly unbanked to drive up the rate of inclusivity to 89 percent in 2019 according to the latest publication of the Financial Access Report by the CBK.