What you need to know:
- CRBs were created to facilitate the sharing of credit information between licensed financial institutions.
Today, they ask you to table your credit score before you can be considered for some key job in the public sector.
Yet what we wanted was credible information that banks and lenders could use to price risk.
President Uhuru Kenyatta has suspended listings by credit reference bureaus as part of measures the Jubilee administration has rolled out to cushion borrowers and small-scale businesses from the economic impact of the coronavirus pandemic.
That makes sense. In the first place, millions of these traders, whose businesses have been disrupted by the pandemic, risked defaulting on their loans, consequently being listed by CRBs and hence, locked out of credit.
Indeed, the decision came in the backdrop of publication of statistics showing that the number of borrowers blacklisted by CRBs has been growing by leaps and bounds.
According to a front-page splash in Business Daily on Monday this week, the number of borrowers blacklisted by CRBs stand at 3.2 million. These are mainly small-scale traders who have defaulted on small loans borrowed through their mobile telephones and stand locked out from credit.
Without the suspension, and in view of the fact that many citizens are jobless, the number of individuals and small-scale traders at risk of being blocked from accessing credit was going to balloon into tens of millions.
The most important source of credit to small-scale traders today, and to informal sector workers such as the vegetable hawker, the waiter, the hairdresser, the driver of a delivery van and the matatu tout is the mobile loan.
There is another reason why I find the suspension of CRB listings sensible: I see an opportunity of looking at our CRB framework afresh.
I think that the reason we have ended up with too many of our people being listed and, hence, cut off from credit for long periods is because the drafters of the legal framework wrote the law with only the formal sector in mind.
In 2009, when the framework was drafted, explosion of the mobile loans had not happened. We did not know that small loans repayable on a weekly basis and lent to small business owners and the informal sector would be a big factor.
Does it surprise anyone that CRB regulations stipulate that the name of a defaulter remains on the listing register of the CRB for seven years? That is why CRB databases are clogged with listings of small amounts.
What is the value of keeping the name of a mama mboga who has defaulted on a seven-day-Sh3,000 Tala loan, for instance, on the blacklist for a whole seven years? When this pandemic is over, we will need to consider introducing a threshold of amounts which the CRB system cannot list a borrower as a defaulter.
And there are many consumer protection and customer service issues which need to be looked at afresh.
Woe unto thee if you find yourself in the list of defaulters of a CRB. It does not matter whether it is a technical default or a mistake that is not of your making.
CRBs will not call you to verify a claim by a lender that you have, indeed, defaulted.
And when, as a borrower, you complain about wrongful listing as defaulter, the standard response is to refer you to the lender who reported you in the first place!
When you clear the loan for which you were listed, your removal from listing does not happen automatically.
We have totally bastardised the whole concept of sharing credit information and turned what was supposed to help and give consumers better access to credit into a sword that banks and mobile lenders hold over the heads of our people all the time.
When this pandemic is over, we will need to go back to the reason why we introduced CRBs in the first place.
In the build-up to the 2017 General Election, the front offices of most CRBs looked like marketplaces, bursting with political aspirants seeking to be given a clean bill of health.
The truth of the matter is that CRBs were not created to vet political candidates. They were created to facilitate the sharing of credit information between licensed financial institutions.
Today, they ask you to table your credit score before you can be considered for some key job in the public sector. Yet what we wanted was credible information that banks and lenders could use to price risk. The objective was not to lock the consumer out of the credit market.
And isn’t it time we started looking at the viability of CRBs as a business?
Since CRBs are an integral part of the credit market and an important plank in our financial market infrastructure, there is a strong case, indeed, for them to be subjected to some form of prudential regulations as happens with banks.
I say so because the evidence in the public domain appears to point to cases where CRBs are proving to be quite poor at settling their own debts.
We can’t afford to have insolvent CRBs.