The Central Bank of Kenya (CBK) has suspended the listing of defaulters of loans below Ksh5 million on Credit Reference Bureaus (CRBs) for a period of 12 months.
In a statement to newsrooms on Monday, CBK Governor Patrick Njoroge said the directive applies to all those borrowers whose loans were performing previously, but have become non-performing from October 1, 2021.
“Consequently, loans below Ksh.5 million that fall in arrears from October 1, 2021, to September 30, 2022, will not lead to the “blacklisting” of the borrower on the Credit Reference Bureaus (CRBs),” the statement reads.
Further, CBK ordered CRBs not include in any credit report, any negative credit information for loans of a customer less than Ksh.5 million submitted to the CRB from October 1, 2020 to September 30, 2021, for a period of 12 months from October 1, 2021 to September 30, 2022.
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This is one of the directives President Uhuru Kenyatta issued on October 20, 2021, during the Mashujaa Day celebrations in Kirinyaga County.
It’s one of the intervention measures introduced by the government to cushion Micro, Small and Medium Enterprises (MSMEs) from the adverse effects of the COVID-19 pandemic on the economy.
“In making its recommendation for the suspension to September 30, 2022, CBK was cognizant of the need to balance between providing relief to MSMEs, while safeguarding the effectiveness and sustainability of the Credit Information Sharing (CIS) framework,” Njoroge said.
The CIS mechanism, the CBK boss said, aims to bridge the information gap about borrowers’ creditworthiness by considering the borrower’s credit history and allowing credit to be priced accordingly.
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“A good credit record demonstrates the borrower’s higher creditworthiness and should lead to a lower cost of credit. In this regard, the suspension could adversely impact the provision of credit by banks to the target group, as they will be unable to distinguish between the good and bad borrowers during the suspension period. This could lead to rationing of credit, as was evident during the period of interest rate caps from 2016-2019.
“The suspension is therefore targeted to rope in the MSMEs and for a specified duration that will provide space to turn around their businesses. Accordingly, CBK recommended a threshold of a loan amount of Ksh.5 million and below, that will capture the targeted MSMEs,” he added.
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Njoroge noted that the one-year suspension period is a reasonable period for the MSMEs to restore their businesses.
“CBK urges borrowers to fulfil their contractual obligations on a timely basis and engage their lenders in case of any concerns,” Njoroge urged.
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