The Central Bank of Kenya (CBK) has asked lenders to consider other metrics in addition to a borrower’s credit score to offer appropriately priced credit.
This comes amid concern that lenders are relying on adverse reports issued by Credit Reference Bureaus (CRBs) to blacklist and deny borrowers credit.
“This approach would allow borrowers and especially micro, small, and medium-sized enterprises to access appropriately priced credit,” said CBK in a statement.
The regulator has also asked 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 sole reason by a lender to deny a customer a loan”.
These are part of reforms in the credit information sharing (CIS) system targeted at lowering the cost of loans for micro and small businesses.
During his inauguration speech, President William Ruto indicated that his administration would work to shift the CRB’s framework from its current punitive and all-or-nothing blacklisting of borrowers to one that accords Kenyans an opportunity to manage their creditworthiness.
“When borrowers experience challenges in repaying their loans, they should proactively engage their lenders,” said the CBK in the updates on the CIS framework.
The rising number of blacklisted loan accounts has hampered the chances of millions of Kenyans being able to borrow more to grow their businesses or invest in projects.
Data from the CRBs showed last year a third of Kenyan loan accounts are negatively listed as defaulted in an economy struggling to create jobs for the growing number of skilled youth who have found themselves in a debt trap.
Mobile digital loans make up the majority of the new listings, despite the government freezing blacklisting of defaulted loans under Sh1,000 last year.