How SMEs can avoid being caught up by the ‘Tentacles of CRB’.

The parliamentary committee on Finance and National Planning approved the Central Bank Amendment Bill 2021 and agreed to include a clause to allow digital lender submit reports to the CRBs. Digital lenders were ordered to stop filing reports with CRBs in April last year in what the regulator said was a response to widespread abuse of the credit information sharing system. SMEs have been on the red line in the number of defaulters. The CRB is edging its blade on penalizing all the culprits accused of default in paying back money in lending from the digital lenders. We have a brief of how victims can avoid being caught up by the lending regulator.

Revised CRB Bill

According to a report by Business Daily, The parliamentary committee on Finance and National Planning approved the Central Bank Amendment Bill 2021 and agreed to include a clause to allow digital lender submit reports to the CRBs. MPs have backed a revised Bill allowing digital lenders to resume reporting loan defaulters to credit reference bureaus (CRBs).

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Digital lenders were ordered to stop filing reports with CRBs in April last year in what the regulator said was a response to widespread abuse of the credit information sharing system.

In October 2020, More than 337 unregulated digital mobile lenders and micro financiers had been barred from forwarding the names of loan defaulters to credit reference bureaus (CRBs). According to the Central Bank of Kenya, delinking unregulated digital mobile lenders from CRBs had been done following public outcry over widespread misuse of the credit information sharing (CIS) mechanism.

This season of over borrowing came immediately the government began experiencing strains impacted by the Lockdown and effects of curfew, as so many people lost jobs later depending on mobile lending and digital lenders to provide them e       equity in financing their start-ups.

Firms such as Tala and Branch were locked out at a time when the bulk of accounts negatively listed with the CRBs — Metropol, TransUnion and Creditinfo International — had been linked to mobile digital borrowers.

“The withdrawal is in response to numerous public complaints over misuse of the CIS (credit information sharing) by unregulated digital and credit-only lenders, and particularly their poor responsiveness to customer complaints,” the CBK said in an earlier statement.

Under the new rules, only defaults above Sh1, 000 were to be shared with CRBs. Borrowers who had been blacklisted for lower amounts are now required to be cleared unconditionally.

“The committee agreed to the proposal so that digital lenders are allowed to disclose any positive or negative information of its customers to the licensed credit reference bureaus,” the committee said about its review of the Bill.

“The information so provided must be only that which is necessary for the discharge of the function of the digital lenders and the licensed credit reference bureaus.”

The proposed law will see the regulator control the digital lenders’ products, pricing of the loans, management and sharing of borrowers’ information.

The lenders, comprising those issuing credit through mobile phones and the Internet, were accused of aggressive tactics, including threatening borrowers with negative listing.

Once digital lenders fall under the watch of the CBK, the regulator will be able to supervise their use of credit information sharing like banks, Sacco’s and other entities currently using the system. The Bill gives the unregulated digital lenders six months to fall under the regulation of the CBK, which will license compliant firms.

SME Public Dismay.

SMEs have also accused Digital Lenders for erroneously listing them. Credit information sharing is one of the most powerful risk-management tools for micro-lenders who typically don’t take collateral from borrowers when issuing the short-term loans. A negative listing makes it nearly impossible for one to take a loan from another credit provider, serving as a deterrence against default.

The lock-out of digital lenders from CRB listings saw a 50 percent decline in loans issued over mobile phones. The Digital Lender Association of Kenya (DLAK) estimates that the value of loans issued each month fell by half to Sh2 billion. The unregulated digital lenders have issued a total of Sh4 billion, less than one percent of the banking sector’s Sh3.1 trillion gross loan They have, however, caught the attention of the government for their predatory business practices, including sky-high interest rates and aggressive loan recovery.

The CBK will have express powers to control lending rates of digital mobile lenders if the proposed law is passed. The committee added a clause that gives the CBK powers to price interest rates for digital loans.

The Bill was initially silent on the lending rates, only stating that the digital lenders were to play under the same rules as commercial banks that seek the CBK’s nod for new products and pricing that includes loan charges. Besides curbing predatory business practices by the digital lenders, the Bill seeks to address concerns of illicit financial transactions, including money laundering.

SMEs have also complained about being charged fees they did not expect and not being made to fully understand the costs or fees associated with loans. Most of them are oblivious of the terms and conditions that include frequent SMS notifications and surrender of their personal data to third parties. Some alternative lenders have used social pressure tactics to collect loans like informing their customers’ relatives and friends of their default.

How to avoid the SMEs can avoid CRB listing

Credit information include your national ID, Names, Email, Phone Number, Employment details, Bank account performance history etc. They get this information from banks and mobile lenders.

CRB Blacklisting is a common term that is used to mean being listed on CRB negatively for loan default, financial fraud or forgery, or bankruptcies

Important to note is that, you might be listed on CRB positively or negatively. By the mere fact that your name is on CRB does not necessarily mean you have defaulted. You will only have defaulted if it is listed negatively.

When wrongly listed on CRB – your name or ID has been negatively listed on CRB and you have never defaulted or taken a loan then somebody might have used your information to borrow a loan. If you know the company that submitted your name to CRB, contact them and launch a dispute so that your name can be cleared.

If you are not aware, contact any of the three CRB companies listed below and inquire from them on the name of the lender who submitted your name. If you pay the loan you had defaulted plus other fines, the financial institution or company for instance Branch, Okash, KCB etc. that submitted your name to CRB will ask their Credit Reference Bureau agency to clear your name. This might take 1 to 3 days.

Important to note is that, Clearance does mean your name being completely removed from CRB. It will only show that you don’t have any outstanding loan. That is, the status will change from negative listing to positive listing. Your previous default and credit history will still remain on CRB even after clearing your loan. Banks will still be able to see your previous loan repayment history. This information will remain on CRB for a period of five years when it will completely be removed.

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Later you’ll receive a CRB clearance certificate which is a legal document that is used to confirm that you are not negatively listed on CRB or you do not have a non- performing account. The clearance certificate might be required by some employers when you are seeking for employment.

It costs Kenya shilling 2,200 to get a clearance certificate. They call it processing fee not fine. In Kenya there are three CRBs among them is CREDITINFO, Metropol and they are all regulated by the Central Bank of Kenya. They receive credit data from various sources such as Banks, Sacco’s, Micro Finance Banks Micro Finance Institutions and FinTech’s.

The state comes up at a period the country is experiencing a hefty rise in the cost of living and a backdrop in GDP due to effects of COVID-19.

Mombasa, Kenya.

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