The Central Bank of Kenya (CBK) has suspended the list of negative loan information for borrowers, bringing major relief to millions of Kenyans struggling to servicing loans in a slowly recovering economy. As of February this year, more than 14 million accounts were put on the default list, according to the Metropol Credit Reference Bureau.
Its CEO, Sam Omukoko, then stated that around 3 million individuals out of 14 million accounts had been blacklisted by the CRB, but this was taken as a conservative estimate. The CBK Suspension Directive, issued today 8 November 2021, applies to loans of less than Ksh5 million that were performing earlier but have become non-performing since 1 October 2021.
This follows the publication of Legal Notice No. 225 dated November 5, 2021 by the Cabinet Secretary, National Treasury and Planning (Cabinet Secretary), on the recommendation of CBK, in accordance with Regulation 18(7) of Banking (Credit Reference). Bureau) Regulations, 2020 (Regulations) – and there are indications that the default rate may approach worrying levels.
As a result, loans of less than Ksh5 million that are outstanding from October 1, 2021 to September 30, 2022 will not “blacklist” the borrower on the Credit Reference Bureau (CRB).
In addition, CRB includes any negative credit information in any credit report for a customer’s loan of less than Ksh5 million deposited to CRB for a period of 12 months from October 1, 2020 to September 30, 2021 will not By 30 September 2022.
This is one of the intervention measures announced on October 20, 2021, in the light of extraordinary circumstances and especially to shield the Micro, Small and Medium Enterprises from Coronavirus (COVID-19) pandemic. purpose was declared. (MSMEs) adversely affected.
Over the past decade, Kenya has developed a robust Credit Information Sharing (CIS) mechanism for the banking sector. The mechanism has facilitated the development of a credit history for Kenyans so that they can get cheaper loans. This is especially important for borrowers who do not have collateral such as title deeds that are traditionally used to secure credit.
The framework has been strengthened over time, most recently in April 2020, with the issuance of revised rules. The reforms in the CIS are to be seen against the backdrop of two important anchors for consolidating the behavior of banks. Firstly, banks are now required to adopt a risk-based pricing approach which considers the credit reports of the borrowers in pricing the loans.
Second, CRBs are required to generate credit scores of borrowers which lenders can use to assess their creditworthiness. It is, therefore, an important tool in ensuring that the banking sector works for and with Kenyans, as outlined in the Kenya Banking Sector Charter, which was launched by CBK in February 2019.
An important development was the sharing of negative information for a period of six months from April 1 to September 30, 2020, to mitigate the economic impact of COVID-19 pandemic Loans that were performing but became non-performing during that period would not lead to “blacklisting” of borrowers.
Sourced from today’s business.