Kenya has witnessed a remarkable reduction in the number of negatively listed borrowers, with figures for individuals plunging from over 2.2 million in 2019 to fewer than one million in 2023. This drastic decline can be attributed to pivotal regulatory changes and shifts in credit market practices.
In April 2020, the Central Bank of Kenya (CBK) introduced a minimum threshold of KES 1,000 for negative credit listings reported to Credit Reference Bureaus (CRBs). This move, part of a broader effort to sanitize the credit information landscape, mandated the removal of all negative listings below this amount.
“The threshold of KShs 1,000 for negative credit information has been instrumental in reducing the number of small-value negative listings, which previously plagued the credit records,” states the August 2024 Kenya’s credit market landscape Demand-side analysis of credit records held by Creditinfo CRB report.
The impact of this regulatory shift is evident. The number of negatively listed individual borrowers dropped from 2,204,591 in 2019 to 1,427,203 in 2020, followed by a further decline to 955,303 in 2021. Despite a slight increase to 1,136,649 in 2022, the number fell again to 933,551 in 2023. This significant reduction suggests a less punitive credit environment, allowing individuals to rebuild their creditworthiness without the burden of minor, often inadvertent, negative listings.
The regulatory landscape was further transformed when the CBK withdrew the approval for unregulated mobile-based and credit-only lenders to act as third-party credit information providers. These entities, criticized for submitting predominantly negative information, were seen as contributing to a disproportionately high number of negative listings.
“The withdrawal of approval for unregulated lenders has had a cleansing effect on the credit information system,” the report highlights, pointing to a healthier and more balanced credit reporting environment.
The corporate sector also saw a notable decline in negative listings. The number of negatively listed companies remained relatively stable from 2019 to 2022, hovering around 6,500 to 7,000. However, in 2023, the figure plummeted to 2,665, reflecting the same regulatory changes that impacted individual borrowers.
The report delves into the broader implications of these changes, noting that the new threshold and regulatory oversight have not only reduced the number of negative listings but also encouraged a more responsible lending and borrowing culture. This shift is crucial for a market that has long been criticized for its harsh credit reporting practices, which often left borrowers with limited recourse to rectify minor financial missteps.
Moreover, the report emphasizes the importance of these changes in the context of the COVID-19 pandemic, which severely impacted the financial stability of many Kenyans. The regulatory adjustments provided much-needed relief, preventing a potential surge in negative listings during a period of economic uncertainty. The CBK’s proactive measures thus played a crucial role in stabilizing the credit market, allowing borrowers to navigate the financial challenges posed by the pandemic more effectively.
The data further reveals a transformation in the credit market dynamics. The reduction in negative listings has likely contributed to a more inclusive financial environment, encouraging previously marginalized individuals and companies to re-engage with formal credit channels.
In addition to regulatory changes, the report underscores the role of increased financial literacy and awareness campaigns in improving credit behavior among Kenyans. These initiatives have educated borrowers on the importance of maintaining good credit records and the long-term benefits of responsible borrowing.
“Financial literacy campaigns have been pivotal in shaping a more credit-conscious society,” the report asserts, highlighting a more informed borrower base that is better equipped to manage credit responsibly.
Looking ahead, the report calls for continued regulatory vigilance and the adoption of best practices to sustain the positive trends observed in the credit market. It also recommends further enhancements to the credit information system, including the incorporation of more positive credit data to provide a comprehensive view of borrowers’ creditworthiness. Such measures, it argues, would further bolster the credibility and reliability of the credit reporting framework.
