For many people, getting listed on Credit Reference Bureaus is distressing. Besides hurting their chances of getting credit in future, it dents reputations, making them look like terrible people who do not pay back what they borrow.
No wonder the excitement generated on social media by suspension of CRB listing as an emergency mitigation measure against effects of COVID-19.
However, experts insist that a listing in itself is not bad. Based on the credit scoring, it could even be beneficial to prospective borrowers.
“The real purpose of bureaus is not to deter people from borrowing. It is to build a credit profile from loans taken, from who and repayment patterns,” says the Managing Director of Metropol Corporation, Sam Omukoko, who adds that a good credit score can be used as a basis for negotiating favourable interest rates.
According to the Metropol Corporation MD, with the removal of caps, lenders’ rates should reflect risk profiles of borrowers. Unfortunately, information asymmetry prevails where lenders have more information than borrowers.
The CEO of Creditinfo, Kamau Kunyiha, blames banks for the perception that CRB listing has attracted amongst borrowers.
“The problem has been the way banks have used the information. Banks did not use it to differentiate between good and bad, CRB information was only used for punitive purposes. If one’s credit history was not good, then they simply lost access to loans. A reward system has never been established for good borrowers,” says Mr Kunyiha.
Mr Omukoko concurs that CRB information empowers borrowers. “Many prospective borrowers do not know that with the score, they do not need to take any rate that is offered to them. This gives them a choice of where to borrow from. With the score, requirements such as having held an account for some time before borrowing, have become obsolete”.
In fact, the inspiration behind creation of CRBs was to enhance access to credit by borrowers, previously hampered by lack of collateral that banks insisted on. Neither could lenders give credit against savings. This perception of elevated credit risk led to high interest rates, and defaults, leading to collapse of some banks.
“The defaulters were possibly the same clique hopping from one bank to another but could not be discovered because there was no information sharing mechanism from which they could be identified. This led to the creation of a Credit Information Sharing system, managed by CRBs as independent third-parties,” Mr Omukoko recalls.
Initially, banks were only required to share lists of defaulters. This was before regulations were amended in 2015 paving way for information on good borrowers to be submitted. Banks are now required to share this information by the tenth of the following month.
At the moment, Kenya has three licensed CRBs – Credit Reference Bureau Africa Limited (trading as TransUnion), Metropol Credit Reference Bureau Limited and Credtitinfo Credit Reference Bureau Kenya Limited. These firms collect and share information from approved credit information providers, namely, Savings and Credit Cooperatives (SACCOs), banks, and microfinance institutions. The mechanism is regulated by the Central Bank of Kenya, which approves the information providers.
Never in history will you ever get away with unpaid debt.. it actually illegal to borrow from lending apps and try to cheat the system.. just pay the borrowed debt on tine and you won't get yourself into trouble.
See also how to increase fuliza rate to ksh 40,000
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