624 digital loan firms barred from sharing client data with CRBs

CBK governor Patrick Njoroge. FILE PHOTO | NMG

By JOHN MUTUA
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Summary

• Fresh data shows that Kenya had 1,994 third-party data providers allowed to share borrowers’ loan defaults and payments with Credit Reference Bureaus (CRBs).
• The banking regulator attributed the fall to the ban, which followed outcry over widespread misuse of the credit information sharing (CIS) mechanism.

The Central Bank of Kenya (CBK) locked out 624 digital lenders and credit-only providers from sharing information on loan payments and defaults last year in the wake of customer complaints.

Fresh data shows that Kenya had 1,994 third-party data providers allowed to share borrowers’ loan defaults and payments with Credit Reference Bureaus (CRBs), a 23.8 percent drop from 2,618 firms licensed the previous year.

The banking regulator attributed the fall to the ban, which followed outcry over widespread misuse of the credit information sharing (CIS) mechanism.

CRBs are allowed to contact third parties including digital lenders for information on loan payments and defaults for onward sharing to banks, microfinance institutions and saccos.

“The decline in numbers follows CBK withdrawal on April 14, 2020 of 491 approvals granted to unregulated digital (mobile-based) and credit-only lenders as third-party credit information providers to CRBs,” the banking regulator says in its Supervision Annual Report 2020.

The CBK move came at a time of mounting loan defaults and increased risk in the wake of the coronavirus-induced layoffs, salary cuts and depressed sales firms.

CBK had also frozen CRB listing for loans that were defaulted from April 1 and the relief lasted for six months up to September 30.

The freeze was aimed at cushioned borrowers in the wake of the Coronavirus economic fall-out that increased risk and saw the share of unpaid loans rise to the highest level since August 2007.