CBK seeks review of credit blacklists schemes

The Central Bank of Kenya (CBK) has initiated fresh steps to curb abuse of the Credit Reference Bureau (CRB) blacklists.

The banking regulator said it was in talks with banks and CRBs to review the credit information framework amid some persistent concerns by borrowers unfairly blocked from accessing loans.

“This relates largely to the use of adverse credit reports issued by credit reference bureaus, which are being used to deny borrowers credit,” the apex bank said.
In a bid to curb abuse of the listings, the CBK said it had mandated all CRBs to include a standard statement at the top of every credit report indicating that a customer’s credit score “should not be used as the sole reason by a lender to deny a customer a loan”.

“Further, CBK is working with CRBs to improve the quality of credit reports, and in particular, enhance the robustness of their credit scoring models and align them to best practices,” said CBK.
The regulator said it was also working with banks on credit-risk pricing to limit the unfair treatment of borrowers.

“In this context, banks are required to consider the credit score of a borrower in addition to the other factors in making a lending decision. This approach would allow borrowers and especially micro, small and medium-sized enterprises to access appropriately priced credit” CBK said.

The regulator however urged borrowers to honour their repayment obligations on their debt to avoid tussles with creditors.
“This will enable them to build a good credit history based on their payment behaviour and thereby obtain loans at better rates,” it said.
More than four million loan defaulters are set to be removed from CRB blacklists under plans mooted by President William Ruto to reform the country’s credit market.

The President in September directed the CBK to abolish the blacklisting of borrowers and instead have a scoring method where defaulters will get a low grade instead of being shut out of the financial system.
President Ruto said the government supports the credit-sharing mechanism but wants a system where borrowers can be graduated from the least to the best, which will then allow lenders to appropriately price their loans based on risk profile.

Borrowers reported to one of Kenya’s three credit bureaus have their chances of accessing new credit severely limited as lenders tend to shun them altogether when they apply for loans, in what is known as a negative listing.