The credit world in Kenya has a very dark side to it. But the dirty little secrets are being exposed, thanks to a change in legislation allowing banks to share information on loan defaulters. This came as bad loans threatened to suffocate some banks.
Now at over Ksh170 billion, banks have themselves to blame for this pile-up of bad loans. They were head over heels dishing out unsecured loans to everyone with a pay slip. Kenyans, being so ready for money, soaked in the loans in the billions knowing too well that they were unsecured and thus the burden of recovery rested with the banks.
So when credit referencing came about, it gave relief to banks since they had at least a weapon to punish defaulters by having them blacklisted from taking loans from other banks. But it did not help much as same defaulters soon joined saccos where they took loans again and continued their vices, leaving saccos holding bad loans worth Ksh15 billion at the end of 2015.
This happened because while banks use saccos credit information to lock out defaulters, saccos are not allowed by law to peek into the bank’s credit vaults. That has left them in the dark, relying on trust and guarantors to give out loans, thus exposing them to more defaults.
Default tracking
A proposed law that gives saccos direct access to credit repayment records of all borrowers has been tabled for debate in Parliament and offers hope for them to track and blacklist serial defaulters. Since saccos have been sharing names of loan defaulters with credit reference bureaus (CRBs), it will be easy to sync their default tracking with mainstream banking.
With Ksh205 billion worth of deposits and a total loan book of Ksh228 billion, the need for this information to streamline their credit business is urgent.
Yet another grey area is the credit reference bureau themselves and their managers and directors. It’s unlikely that they can blacklist themselves in case they have defaulted on loan repayments here and there.
There should be a mechanism of vetting managers and directors of credit reference bureaus and even banks to make sure they do not abuse their positions by exempting themselves and their friends and family members from black-listing or using the information selectively to intimidate, or extort from, defaulters.
It is possible that those who have access to the information and with privileges to change a listed person’s status can easily be compromised to let loan cheats off the radar or harass other innocent people. This is very sensitive information that must be guarded by people of unquestionable integrity in highly secured systems.
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This article was first published in the People Daily on August 10th 2016. Email: [email protected]
