The Central Bank of Kenya (CBK), on November 11, noted that Credit Reference Bureaus (CRBs) were using adverse credit reports, viewed by the general public as tools to deny borrowers credit.
CBK highlighted that the circumvention was ongoing despite improvements made to the Credit Information Sharing (CIS) framework launched in 2010.
First, it directed CRBs to include a standard statement at the top of every credit report indicating that a customer’s credit score should not be used as the main reason a lender should deny a customer a loan.
Further, CBK added that it would work closely with banks in implementing risk-based credit pricing, where banks will be required to consider a borrower's credit score and other factors before making a lending decision.
"When borrowers experience challenges in repaying their loans, they should proactively engage their lenders. They should also review periodically their credit reports to track their credit scores and verify the accuracy of the reports." CBK announced.
CBK claimed the approach would allow borrowers and especially micro, small, and medium-sized enterprises(MSMEs), to access appropriately priced credit.
The 2020 Regulations provided that CRBs must develop a credit score for each borrower whose credit information was submitted and that the score had to be computed using details and methods prescribed by the CBK.
"We remind the public that they are entitled to one free credit report per year." CBK reiterated.
It also urged citizens to honour payment obligations on their credit facilities to enable them to build a good credit history, thereby obtaining loans at better rates.
The initial introduction of the CIS framework addressed the cost of clearance reports needed by citizens before employment, which was viewed as an entry barrier and unregulated digital lenders and credit-only lenders using CRB listing and other measures to harass borrowers.
Blacklisting members of the public based on their credit scores was viewed as a punitive tool that barred Kenyans from getting loans instead of helping borrowers take advantage of their credit history to get better pricing of loans.
In Kenya, a credit score rating begins from 0-900 and is considered a good score when above 800, reflecting that one can pay their loan promptly.
A good score is determined by a borrower's history of paying back loans, the type of loan a borrower demands (digital or mortgage), the term of the loan and the total debt a borrower has.
A score rating between 0-450, is an indicator of a bad score rating, a reason that may lead financial institutions declining to offer you loans, because of a bad repayment history.
In president William Ruto's inaugural speech on September 13, 2022, he backed the assigning of credit scores to borrowers in a push to allow CRBs to ensure that Kenyans are not denied credit.
