Kenya: CRB listing moratorium hurting personal loans

Kenya's financial landscape has been experiencing a significant shift with the suspension of the listing of borrowers defaulting on loans of less than 5 million shillings by credit reference bureaus. This move, aimed at providing relief to small businesses and individuals, has raised concerns among lenders regarding the impact on lending and credit risk management on personal loans. In a recent interview on CNBC Africa, Chief Economist at Mentoria Economics, Ken Gichinga, shed light on the effects of the moratorium and the evolving dynamics of the banking sector in Kenya. Gichinga highlighted the challenges faced by SMEs in Kenya, where delayed payments from the government can lead to borrowers being blacklisted, underscoring the need for a reevaluation of how credit reference bureaus function in the African context. He emphasized the importance of building trust and long-term relationships in the banking industry, suggesting that many lenders are reverting to a more traditional approach of assessing borrowers based on history and relationships rather than relying solely on credit reference bureaus. While acknowledging the role of CRBs in scaling up credit in the past decade, Gichinga noted that banks can operate without them, as evidenced by the industry's long-standing history in Kenya. The conversation also delved into the impact on digital lending in Kenya, with Gichinga highlighting the shift towards more robust data sets to supplement the absence of CRB data. He pointed out that digital lenders are adapting by incorporating additional data points such as transaction histories to make more informed lending decisions. Overall, the interview provided valuable insights into the challenges and opportunities that the banking sector in Kenya is facing amidst the current moratorium on CRB listings, emphasizing the importance of striking a balance between technological innovation and fostering strong relationships with borrowers.