CBK Bans over 600 Loan Firms From Sharing Client Data

Many Kenyans can now enjoy a moment of relief after the Central Bank of Kenya banned at least 624 loan firms in sharing client data with the credit reference bureau (CRB).

Amidst the ongoing pandemic, many Kenyans have had to endure heavy economic challenges. Information released by the credit reference bureaus (CRBs) in February 2021 indicated that over 14 million Kenyans had their accounts blacklisted for failing to service their loans.

According to the Business daily, CBK had to lock out these lenders and credit-only providers from sharing information on loan payments and defaults last year in the wake of customer complaints.

According to statistics by the CBK, Kenya had 1,994 third-party data providers allowed to share borrowers’ loan defaults and payments with Credit Reference Bureaus (CRBs), a 23.8 percent drop from 2,618 firms licensed the previous year.

Whilst the most affected ones in the economy are the small and medium sized enterprises, the axe on lenders has been on their necks every day. It’s estimated that almost every investor in MSMEs in the country having a smartphone must have a pending loan from the defaulters, some that could go beyond four and five years.

CBK confirmed the fall to the ban, which followed outcry over widespread misuse of the credit information sharing (CIS) mechanism.

“The decline in numbers follows CBK withdrawal on April 14, 2020 of 491 approvals granted to unregulated digital (mobile-based) and credit-only lenders as third-party credit information providers to CRBs,” the banking regulator depicted in its Supervision Annual Report 2020.

As the economy continues to receive heavy shockwaves as registered since March last year. Many Kenyans have had to suffer alot from losing their jobs, pay-cuts and lesser economic growth compared to the previous years.

While the banking regulator uses this new Model to curb the loan lending firms, one of its aim in the Central Bank of Kenya (Amendment) Bill, 2021, is to empower the itself to supervise digital lenders for the first time, this will help curb the steep digital lending rates that have plunged many borrowers in a debt trap as well as predatory lending.

According to the bill business people who enter into the digital lending space will be subjected to an early six month registration with the CBK.

“Any person who before coming into force of this was in the business of offering credit facilities or loan services through a digital channel and is not regulated under any other law shall register with The Bank (CBK) within six months of coming into force of this Act,” says the Bill tabled in Parliament by Gladys Wanga in her capacity as chair of the Committee on Finance and National Planning.

The push to control the activities of digital lenders comes more than a year after Kenya removed the legal cap on commercial lending rates.

With regard to the cap, which was introduced in September 2016, it slowed down private sector credit growth as commercial banks turned their backs on millions of low-income customers as well as small and medium-sized businesses deemed too risky to lend to.

According to the Business daily as of 26 April ,2021; The subsequent credit crunch triggered an appetite for digital loans, attracting unregulated microlenders to Kenya’s credit market in response to the growth in demand for quick loans.

Market leader M-Shwari, Kenya’s first mobile-based savings and loans product introduced by Safaricom and NCBA in 2012, charges a “facilitation fee” of 7.5 percent on credit regardless of its duration, pushing its annualised loan rate to 395 percent.

Tala and Branch, the other top players in the mobile digital lending market, offer annualised interest rates of 152.4 percent and 132 percent respectively.

In April, the CBK barred unregulated digital mobile lenders from forwarding the names of loan defaulters to credit reference bureaus (CRBs).

Among the top leading loan defaulters among Kenyans as indicated by the CBK, were the home owners, landlords and the investors in transport industry.

CBK data showed that, loans secured on strength of title deeds and logbooks posted the largest increment in absolute numbers in the quarter through September, accounting for nearly 60 per cent of new bad loans in the period.

Transport, communications and as far as real estate stood at 58.7 per cent of the 19.6 billion additional loans not working. This was a grave show of how the industries have been bad hit by the pandemic.

Kenyans all over the country, especially in the coast region who have had to struggle with crawling economy have embraced this new move by the CBK as a gift. However to an acclamation of many, Partial shutdowns and restrictions such as night curfew resulted in some businesses scaling down operations and shedding workers, further distressing real estate developers who have for years been battling dipping growth in sales and rental prices in a softening economy.

It is a relief as the country steadily moved towards economic redemption after a long one year battling recessions and non profitable days. These loan lenders need to consider the directive as a reprieve.