President William Ruto’s administration has announced intentions to modify the credit information exchange system in a bid to reduce the cost of loans for micro and small businesses.
This comes at a time when data indicates that at least a third of Kenyan loan accounts are negatively listed CRBs.
“Our starting point is to shift the credit reference bureau (CRB) framework from its current practice of arbitrary, punitive, and all-or-nothing blacklisting of borrowers, which denies borrowers credit. We will work with credit reference bureaus on a new system of credit score rating that provides borrowers with an opportunity to manage their creditworthiness,” Ruto said during his inaugural speech.
This occurs only a few days before the year-long suspension of the negative listing of debtors with up to Ksh5 million in arrears under former President Uhuru Kenyatta’s administration comes to an end.
For these defaulters, the grace period expires on September 30. The directive prohibiting the reporting of loan failures, according to lenders, has made it difficult to implement the differentiated lending framework on mass market loans because it prevents them from using the credit reporting system.
The likelihood that millions of Kenyans will be able to borrow additional money to expand their businesses or for projects has been jeopardised by the rising number of loan accounts that have been banned.
Despite the government having banned the blacklisting of defaulted loans below Ksh1,000 from April to December of last year, the majority of the new listings are for mobile digital loans.
“To implement all these interventions, we shall establish a ministry of Cooperatives and SME development mandated to ensure that every small business has secure property rights, access to finance and a supportive regulatory framework,” said President Ruto.
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