The World Bank Group (WB) has faulted the Central Bank of Kenya (CBK) over its directive to have Kenyans with loans less than Ksh5 million delisted from Credit Reference Bureau (CRB).
In a report titled, Fintech and the Future of Finance, the global financial group noted that the move was not only ineffective but also put credit lenders at risk.
World Bank explained that the directive hindered financial institutions from accessing the credit score of potential borrowers.
“The popularity of mobile money in Kenya, for example, has led to broader financial inclusion but also to the blacklisting of numerous borrowers for defaults on nano-loans under ksh1200 ($10).
“One of the responses of the Kenyan regulator was to block mobile lenders from recording defaults with the credit bureau. This could be ineffective and hurt digital and conventional lenders alike seeking to understand the full indebtedness of a potential borrower without addressing the product appropriateness issue,” read the report in part.
Further, World Bank acknowledged that digital lending had become common in the country given access to mobile lending applications. However, the financial group underlined that defaulting on loan repayment was still a big challenge.
This was explained by the fact that a majority of borrowers did not understand the terms and conditions that are set by digital lenders.
“While digital microcredit has expanded access to credit in some developing economies, countries such as Tanzania and Kenya have seen large numbers of borrowers unable to repay loans due to irresponsible lending practices,” the global financial institution stated.
The 2022 report made reference to CBK’s directive that was issued in November 2021 following orders issued by former President Uhuru Kenyatta during last year’s Mashujaa Day celebrations.
At the time, Uhuru ordered the directive to take effect for one year explaining that the move would enable Micro, Small and Medium Enterprises (MSMEs) to access credit in their post-global pandemic recovery plan.
The listing of Kenyans on CRB has been one of the key issues that dominated campaigns prior to the August 9 polls.
Notably, during his maiden speech on his September 13 inauguration, President William Ruto also revealed that his administration held talks with CBK over CRB listing.
“Financial inclusion and access to credit are critical in addressing the fundamental factors of the cost of living, job creation and people’s well-being. We shall take measures to drive down the cost of credit.
Our starting point is to shift the Credit Reference Bureau (CRB) framework from its current practice of arbitrary, punitive and all or nothing blacklisting of borrowers,” the president announced.
Over 14 million Kenyans are reportedly blacklisted on CRB according to statistics by multiple financial websites.