Number of loan defaulters blacklisted in the Credit Reference Bureau increases by 300 percent in 3 years

TransUnion Credit Bureau, one of Kenya’s three licensed Credit Reference Bureaus (CRBs) has released data showing that Kenya has up to 500,000 people blacklisted in the CRB. This represents a 300 percent jump from 2015’s figure of 150,000 blacklisted borrowers.

According to TransUnion CEO Billy Owino, the bludgeoning numbers are as a result of heavy borrowing from Fintech services such as Tala, M-Shari, KCB M-Pesa. Borrowers don’t clearly realise the consequences of not paying the loans, which are often in small amounts and easy to ignore.

Debt, both at a household and country level has been a major source of scrutiny in Kenya. One of the major contributors to the enactment of the law capping interest banks on loans under the Banking Amendment Act 2016: was that many of the loaned were defaulting on loans. They didn’t fully understand the terms under which they were taking loans or the full cost of paying back. High-interest rates and extra charges made it laborious to service loans and thus led to defaults.

On the other hand, even with the capping of interest rates and the requirement that financial institutions disclose all the terms of loans before entering into agreements with clients. The number of blacklisted individuals in the CRB has more than tripled in three years. Why?

Well, according to the 2017 Digital Credit Survey, a report by Financial Deepening Kenya (FSD) in collaboration with the Central Bank of Kenya (CBK). Kenya has 6 million digital borrowers across its Fintech sector. Market leaders include M-Shwari (28 percent market share), KCB M-Pesa (12 percent) and Equity Eazzy (3.9 percent), the popular lending apps Tala and Branch have less than 1 percent market share.

According to the report, almost half of the 6 million digital borrowers report having been late in loan repayment before. The top reasons for the delay include poor business performance, loss of sources of income, poor planning and diverting all income to cater for basic needs such as food and utility bills.

Far from common thinking, being listed in the CRB does not always spell doom. The Credit Reference Bureau Regulations 2013 requires all financial institutions to share all information contained in their loan books-positive or negative with the licensed CRBs. Which include TransUnion Credit Reference Bureau Ltd, Metropol Credit Reference Bureau Ltd and Creditinfo Credit Reference Bureau Ltd.

The CRB is meant to be a repository of information that banks use to check the status of loanees with other banks before issuing loans. If one defaulted on a loan with one bank it’s supposed to be a warning sign for other banks not to deal with that person.

However, that’s not the case, according to Mr Billy Owino TransUnion’s CEO, the high default rates were partly attributable to credit platforms not taking the time to check what alternative platforms borrowers had taken loans from. This resulted in multiple borrowing and multiple defaults.

This is line with findings of the Digital Credit Report, which found that over a third of digital borrowers tried multiple lenders and that 14 percent were juggling loans from multiple lenders at the time of the study.

If the trend continues, 500,000 blacklisted borrowers will be like a grain of sand in the desert in the next three years. That number is likely to rise as Kenya’s mobile penetration rate continues to surge while the Fintech sector continues innovating and gets new entrants.


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