President William Ruto has pushed for changes to the current Debt Management Bureau, which has blacklisted thousands of borrowers for defaulting on their loans.
President William Ruto has pledged to implement changes to the current Credit Bureau (CRB) framework, which has blacklisted thousands of borrowers for default and says it is one of the reasons businesses and individuals cannot borrow.
In his inauguration speech after being sworn in yesterday, President Ruto described the current CRB framework as unreasonable and punitive, saying it has prevented many borrowers from getting loans.
“We will take measures to reduce the cost of debt. Our starting point is to change the framework of the credit reference bureau from an arbitrary list or blacklist that denies credit to lenders,” he said.
He said he will work with CRBs to implement the new system.
“We will work with the CRB on a new credit scoring system that will allow borrowers to manage their creditworthiness. This will eliminate the blacklist,” he said.
But even if President Ruto plans to use changes to the credit rating system to open up the credit market, it is not clear how this approach will achieve its goal, since the government suspended the CRB list as one of the Covid-19 stimulus measures. Borrower cushion causes lenders to reduce lending to the market.
A credit score refers to the rating a borrower receives from a financial institution based on how efficient they are in paying off the loan after taking out the loan.
Those who pay on time receive a high score, while those who fail are low or blacklisted. Lenders rely on the score to make credit decisions, such as denying a loan or assigning a higher rating, because it allows information to be shared across all lending institutions.
While the Central Bank of Kenya allows banks in the country to offer risky loans to risky borrowers, but at higher interest rates, they cannot extend loans because they cannot use the credit reporting system.
Lenders say the lack of information needed to accurately assess a customer’s risk profile and know the extent of bank exposure limits their ability to lend.
This is after the government in September last year announced a one-year moratorium on the negative listing of borrowers with loans of less than Sh5 million by CRB.