Economic experts weigh in on Uhuru’s policy for MSMEs access to credit

CBK extends third-party list of data providers to CRBs

President Uhuru Kenyatta on October 20 this year ordered the National Treasury and all financial institutions to work out a moratorium that will see Micro Small and Medium Enterprises (MSMEs) with less than Ksh.5 million have their information undisclosed to Kenya’s three Credit Reference Bureaus (CRB).

The President’s directive also meant that borrowers who have defaulted loans within the same threshold will be unlisted from CRBs for one year lasting September 2022.

However, according to economic experts, the President’s directive is only meant to take country backward with regards to credit risk, without considering the strides it has made to ensure clear and sufficient access to credit.

Arnold Ngusale, Microfinance Banker and Economic Analyst while appearing on Metropol TV’s Business AM show on Monday morning, cushioned that the President’s move o CRB may create a loophole in accessing credit, proving a high risk for lenders.

“CRB listing helps you have a full appraisal of the client, if you remove that you have a massive loophole in which a lender will not have a credit report of the client,” said Ngusale.

Tommy Randall, a policy analyst who was also on the same show, termed Uhuru’s directive a dent on access to credit, saying banks will be reluctant to lend to borrowers.

According to Randall, banks will not be in a position to asses customer’s credit worthiness without a credit report, a document obtained from CRBs based.

“Wanjiku may not have any history with any bank but needs money. but President Kenyatta’s policy will reduce the money supply in the market which Wanjiku needs,” said Randall.

Randal also said that “if you are telling a lender that the only information Wanjiku has to offer is information because she does not have collateral, it will lock her out of the market because the lender will shift credit elsewhere where it’s less risky.

Other experts opined otherwise, arguing that Uhuru’s recent move was a relief for most Kenyans who have been unable to access credit because of CRBs.

As of January this year, slightly above 14 million Kenyan accounts had been listed on Kenya’s three CRBs – Metropol, Credit Info and Trans Union over defaulted loans.

“With 14 million Kenyans on the CRB list, the tool now seems like it is working to lockout Kenyans from low-interest lenders while exposing them to shylock apps,” said Rufas Kamau, Research and Markets Analyst, Scope Market.

On January 17, 2014, the then Treasury Cabinet Secretary Henry Rotich published in the Kenyan Gazette the CRB regulations, 2013 requiring all banks and micro lenders to share credit information through licensed CRBs.

Objective of this regulation was to harmonise the credit information sharing (CIS) mechanism and to facilitate full file reporting by commercial banks and microfinance banks.

But the President’s order, based on the economy that has been battered by the coronavirus pandemic, would mean to cushion borrowers for a year as they try to get back on their feet financially.

The measure is geared at supporting credit disbursement to the private sector as the government steps up efforts to pump cash into an already ailing economy.

 “Some of the micro, small and medium enterprises (MSMEs) have struggled to get back to a sound footing following the adverse effects of the pandemic,” said President Kenyatta.

The government had suspended all new CRB listing between April and October last year while the Central Bank of Kenya (CBK) had directed banks to offer loan moratoriums to customers across a 12-month period from March 2020.

The moratorium lapsed in October 2020, allowing financial institutions to start sending names of defaulters to the bureaus. Lenders, however, offered defaulters 90 days from October 1 last year to start repaying their loans or get listed with CRBs.

In his opinion, Kamau said that moving forward, banks should formulate their own ways of lending credit without using bureaus.

“When it comes to the credit facility, Wanjiku is still locked out, if you do not force the banks, they may continue lending to the government only.”

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Lawrence Baraza is a prolific writer with competencies in Digital Media, Print, and Broadcast. Baraza is also a Communication Practitioner currently spearheading Digital content on Metropol TV's Digital Desk.

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