NAIROBI, Kenya, Aug 8 – Finance Minister Njeru Githae plans to institute reforms to the credit information sharing process that has left thousands of Kenyan individuals and companies blacklisted and unable to access credit.
Githae said he was aware of the frustration borrowers faced when applying for loans, only to be turned away because their credit history had not been updated.
“The problem is once your name has been sent to the Credit Reference Bureau; even if you pay your loan they will not remove your name immediately. At the moment they are taking three years. So we want to find a way of reducing that period,” he said.
In a study released earlier this year by Financial Services Deepening (FSD Kenya), more than 213,000 individuals and 9,954 businesses had been blacklisted by banks as at April 2011, owing to pending loans.
Githae plans to meet with Central Bank Governor Njuguna Ndung’u next week to discuss the necessary changes.
Banks have been notorious for sharing negative information on borrowers, often locking out those listed, which Githae said will be looked into, adding that payment histories from utility companies and other institutions should be accepted by credit reference bureaus.
“If a bank wrongly sends your name and you lose credit there should be a penalty. We need to include utilities like water, electricity and rent. That is when you get the real credit history,” he said.
FSD found that most banks tend to use the credit information as an excuse to deny people credit without considering the nature or amount in default.
The report also indicated that thousands of consumers have been blacklisted based on incorrect information and have only been informed of it when negotiating with a lender for credit.
“We want to determine at what point the bank sends the name to the credit bureau as well as how long your name stays at the bureau after you have cleared your loan. We want banks to also notify borrowers when their name is sent,” Githae said.
Credit information is currently being shared on approximately 200,000 consumers.
However, there are approximately five million consumers who have credit agreements with formal sector financial institutions.
This means that current information sharing covers less than five percent of the consumers who have formal sector credit agreements.