Unpaid water, electricity and phone bills will deny you credit starting 2017

Failure to pay electricity, water and telephone bills could now land Kenyans on the list of defaulters at the credit reference bureau and deny them access to loans. PHOTO | FILE 

By JAMES ANYANZWA

In Summary

• The noose is tightening on bad debtors, with settling of Sacco loans now also added to factors — which will from January 2017 be used to determine a borrower’s creditworthiness.
• The Finance Act 2016 gazetted last week also allows lenders, the utility firms and credit reference bureaus to share borrower information with their counterparts in the East African region.
• Ideally, the riskier borrower should procure the services at a premium interest rate but under a practice adopted by the financial sector, defaulters are being denied facilities until they settle outstanding debts or reach fresh repayment terms with the respective creditor.

Failure to pay electricity, water and telephone bills could now land Kenyans on the list of defaulters at the credit reference bureau and deny them access to loans.

The noose is tightening on bad debtors, with settling of Sacco loans now also added to factors — which will from January 2017 be used to determine a borrower’s creditworthiness.

The Finance Act 2016, which was signed into law two weeks ago by President Uhuru Kenyatta amends the Banking Act to allow power, water and telecommunications firms to refer defaulters to credit reference bureaus.

The Act gazetted last week also allows lenders, the utility firms and credit reference bureaus to share borrower information with their counterparts in the East African region.

The law intends to broaden the basis for establishing the risks related to a borrower’s character which would raise the red flag to lenders and suppliers of other goods and services on credit.

Metropol Credit Reference Bureau (CRB) managing director Sam Omukoko said expanding credit information sharing to Saccos and utility companies would enhance the Bureaus measurement of the borrowers’ risk profiles.

“Collecting credit information from Saccos and utility companies will now increase the visibility of the customers since we will be able to collect data from various sources which also enhances our measurement of risk profiles. The more we see what a customer is doing the more we can predict his or her action tomorrow,” said Mr Omukoko.

READ: Credit reference bureaus seek to include data from utility firms

Ideally, the riskier borrower should procure the services at a premium interest rate but under a practice adopted by the financial sector, defaulters are being denied facilities until they settle outstanding debts or reach fresh repayment terms with the respective creditor.

Already the Nairobi City Water and Sewerage Company has warned customers of immediate disconnection without further notice as soon as a bill falls into arrears.

“Please pay now to avoid the disruption of your services and your name being shared with the Credit Reference Bureau,” the notice sent via SMS to individual customers states.

The use of utility bills in determining credit worthiness is expected to lessen the collection burden on suppliers, obligates customers to settle bills promptly and creates a new income stream for credit reference services who charge Ksh100 ($1) for each report issued.

According to Kenya Power chief executive Dr Ben Chumo the new law is significant in debt management particularly to post-paid customers. “This is very important for debt management particularly with post-paid metering but most of our customers are increasingly on prepaid metering,” he said.

However, the law also means that utility companies especially in the water and electricity sector will have to invest more in robust systems to minimise disputes arising from erroneous billing and wrong referencing to CRBs for which customers can sue for damages.

Even before the Finance Act comes into force next year, Saccos have out of prudence been getting credit records of their members from CRBs and using them to deny facilities to borrowers with bad habits. The Higher Education Loans Board has also been referring defaulters to CRBs.