Saccos access to bank records set to tighten noose on loan cheats

Metropol Credit Bureau MD Sam Omukoko. Saccos have until now been sharing names of loan defaulters with credit reference bureaus (CRBs), but have not had access to the records of bad borrowers since the law allowed only banks to view the information. FILE PHOTO | NATION MEDIA GROUP 

By GEORGE NGIGI, gngigi@ke.nationmedia.com

In Summary

• The Bill allows savings and credit cooperative societies (saccos) direct access to information about good and bad borrowers.
• Non-performing loans held by the saccos add up to an estimated Sh15 billion, indicating the bulk of borrowers have good records.
• Bad loans in the banking sector are, however, at a decade-high Sh170 billion, indicating that the defaulters could be shifting to the sacco sector.

The noose is set to tighten on bank loan defaulters with a proposed law that gives saccos direct access to credit repayment records of all borrowers having been tabled for debate in Parliament.

The Bill allows savings and credit cooperative societies (saccos) direct access to information about good and bad borrowers, effectively enabling them to weed out those who turn to them for loans after defaulting on their bank debts.  

“Sacco societies may, in the ordinary course of business and in such manner and to such extent as may be prescribed under the Banking Act, exchange such information on performing and non-performing loans as may be specified by the Authority from time to time,” says the Sacco Societies (Amendment) Bill, 2016.

Saccos have until now been sharing names of loan defaulters with credit reference bureaus (CRBs), but they have not had access to the records of bad borrowers since the law allowed only banks to view the information.

Saccos are hugely popular with borrowers due to their relatively cheaper and fixed lending rates.

There are 184 licensed saccos in the country with deposits worth Sh205 billion and a total loan book of Sh228 billion.

Non-performing loans held by the saccos add up to an estimated Sh15 billion, indicating the bulk of borrowers have good records.

Bad loans in the banking sector are, however, at a decade-high Sh170 billion, indicating that the defaulters could be shifting to the sacco sector.

The sharing of positive information by saccos will further put pressure on lending institutions to reward good borrowers instead of using CRB reports to merely blacklist defaulters.

READ: Credit bureau wants rent defaulters listed to boost loan vetting

Lending institutions have been rejecting loan applications by borrowers listed with the credit bureaus for having defaulted on previous loans.

Borrowers have been forced to clear outstanding amounts with the previous lenders and then wait for up to one month before getting a new loan.

“The Act forming credit bureaus had omitted saccos – so this is bringing them on board so you don’t get a loan from the bank, default and then come to us,” said Sacco Societies Regulatory Authority (Sasra) acting chief executive John Mwaka.

Banks have also been accused of listing customers who had outstanding transactional fees such as debit card application fees, turning the credit bureaus to fee collecting agencies to drive their profitability.

The Bill also seeks to tighten corporate governance in saccos by introducing a requirement for the vetting of directors in an effort to boost confidence in the sector.