Relief for borrowers as CBK suspends blacklisting on CRB

This is on loans below Sh5 million that became non-performing from October 1, 2021.

In Summary

•The suspension is however temporary, for a period of 12 months.

•Move targeted to shield Micro, Small and Medium Enterprises (MSMEs) from the adverse impact of the Covid-19 pandemic.

CBK Governor Patrick Njoroge
CBK Governor Patrick Njoroge
Image: FILE

The Central Bank of Kenya has suspended the listing of negative credit information for borrowers with loans below Sh5 million.

This is for a period of twelve months in a move targeting to shield Micro, Small and Medium Enterprises (MSMEs) from the adverse impact of the Covid-19 pandemic.

According to CBK governor Patrick Njoroge, the suspension applies for  borrowers whose loans were performing previously, but have become non-performing from October 1, 2021.

Consequently, loans below the Sh5 million threshold  that fall in arrears from October 1, 2021 to September 30, 2022, will not lead to the “blacklisting” of the borrower on the Credit Reference Bureaus (CRBs).

"Further, CRBs will not include in any credit report, any negative credit information for loans of a customer less than Sh5 million submitted to the CRB from October 1, 2020 to September 30, 2021," Njoroge said in a statement to newsroom, on Monday.

Millions of borrowers have been struggling to repay their loans mainly during the pandemic era which has been marked with job losses and closure of businesses.

During his Mashujaa Day speech, on October 20, President Uhuru Kenyatta issued a directive for the suspension, a move that had earlier been made by government at the onset of the pandemic. 

It however lasted for six months, from April to September 2020, and provided relief particularly to MSMEs during the pandemic period.

Uhuru last month noted some of the MSMEs continue to struggle to get back to a sound footing following the adverse effects of the pandemic, which saw him issue the directive.

"In addition to foregoing measures and to accelerate our economic recovery, I urge all banks and financial institutions to accommodate customers who seek to restructure their banking facilities," the President said during his address to the nation.

Last Friday, the National Treasury published a legal notice (No. 225 of November 5, 2021), on the recommendation of CBK, pursuant to regulation 18 (7) of the Banking (Credit Reference Bureau) Regulations, 2020 (Regulations).

Over the last decade, Kenya has developed a robust Credit Information Sharing (CIS) mechanism for the banking sector.

The mechanism has facilitated the development of a credit history for Kenyans to enable them access cheaper credit.

This is particularly important for those borrowers who do not have collateral such as title deeds that have traditionally been used to secure credit.

The framework has been strengthened over time, most recently in April 2020, with the issuance of revised regulations.

The improvements in the CIS are to be seen against a backdrop of two important anchors to strengthen the behaviour of banks, CBK notes. 

First, banks are now required to adopt a risk-based pricing approach that considers borrowers’ credit reports in the pricing of loans.

CRBs are required to generate borrowers’ credit score that lenders can use to assess their creditworthiness.

"It is therefore an important tool in ensuring that the banking sector works for and with Kenyans, as was outlined in the Kenya Banking Sector Charter, that was launched in February 2019, by CBK," Njoroge said.

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