Try to figure out what you would do with Sh100.
For many workers in Nairobi, this amount is barely enough for a day’s commute to work by public transport. For households, Sh100 only buys two 400-gramme loaves of bread and a 500ml packet of processed milk with nothing to spare.
But in credit circles, amounts as little Sh100 are such a pain to thousands of Kenyans who have to face the torment of being blacklisted as defaulters and denied access to loan facilities.
More than 400,000 Kenyans are listed with the credit reference bureaus (CRBs) for outstanding mobile loans of less than Sh200, underlining claims that banks have been misusing the credit information sharing system.
A survey by Transunion Credit Reference Bureau (CRB) found that 316,455 people in a group of 600,000 cases had been negatively listed for outstanding balances of less than Sh100 associated with mobile money.
Banks have been accused of denying such potential borrowers financing as their credit officers limit the use of credit reports to whether a person has ever defaulted a previous loan which is enough ground for rejecting the application.
Notably, more than 100,000 of those listed for small amounts were repaying bigger facilities such as car loans, credit cards, personal loans and even mortgages borrowed earlier than the mobile loan.
“If a lender were to do a ‘yes or no’ check, they’d rule out these borrowers due to the adverse listing. However, if they use scoring methodologies, these customers stand a chance, but at a higher level of risk assessment,” said Transunion acting chief executive Rose Kinuthia.
Banks are presently doing the yes/no checks which is a mere confirmation on whether someone is blacklisted or not.
Licensed credit bureaus confirmed to the Business Daily that they have credit scores for all customers whose details, positive and negative, have been forwarded to them.
Banks have been reluctant to use credit scoring preferring to put all individual borrowers on the same risk bracket which allows them to charge high interest rate for personal loans.
“Credit referencing is not mandated but the mindset of the banks is to see whether there is anything negative on the borrower,” said Metropol CRB chief executive Sam Omukoko.
Banks require customers with negative credit listing to first pay outstanding amounts for which they had been listed then get a clearance certificate from the bureaus before they consider advancing them a loan.
Credit bureaus charge Sh2,000 for clearance certificates.
Recent introduction of interest caps is likely to push banks to hasten uptake of credit scoring faster than the one year they had pledged in a memorandum forwarded to Central Bank of Kenya (CBK).
The CBK has also been left in the dark with the governor, Dr Patrick Njoroge, recently stating that credit scores were not available.
“We have our generic score which takes into account all the client’s borrowings and predicts the probability of default. We also do customised scores for lenders upon request based on their data,” said Ms Kinuthia.
Some large banks have credit scores for their customers but this information is held by the bank denying the borrower opportunity to use the same to bargain for lower rates from other lenders.
Mr Omukoko of Metropol also confirmed the bureau generates information for banks as requested.
He added that the bureau was currently rating small and medium sized companies (SMEs) in hope that businesses in its pool would be able to secure loans faster and at cheaper prices.
Equity Bank said it was offering mobile loans to borrowers with good score at four per cent while those who are poorly scored were accessing credit at seven per cent.
Other banks offering mobile based loans include KCB and Commercial Bank of Africa.
Banks rely on the yes/no check and airtime usage to score the mobile clients which is a narrow view of a borrower’s creditworthiness.
Scoring by bureaus is broader to include promptness of loan repayments, number of loans being serviced and type of loan facilities.
“The risk score we have ranges from 1 to 999. The higher the number, the better the score. We then categorise the customers into score bands from AA, which is the best to JJ,” said Ms Kinuthia.
Failure to use credit scores has seen banks scramble for a limited number of customers who are perceived as good.
Ms Kinuthia notes Transunion has more than 16 million records of customers and businesses, but about seven million are ‘active’ borrowers.
This indicates banks have more than nine million borrowers to compete for and turn active.
Limited use of CRBs by banks to deny loans to those who have negative history has adversely affected the public view of the bureaus. The bureaus are seen as blacklisting platform used by lenders to collect outstanding debt and fees.
The CBK recently issued a memo to banks warning them of abusing the credit reference bureaus.
Banks have been forwarding names of customers for low amounts related to transaction fees such as processing of ATM cards and account closure charges.
The CBK noted in the memo that banks are expressly denying credit to those who have been negatively listed with the bureaus when that was not the intention of credit information sharing.
“It was never the intention of using the credit information sharing mechanism as a blacklisting mechanism, but as a risk management tool,” said CBK director of banking supervision Gerald Nyaoma.
Since the introduction of the credit information sharing mechanism seven years ago, banks have mainly used it to punish customers with a bad credit history but are yet to reward loyal borrowers, raising queries over its relevance to consumers.
Central Bank data shows that 12,546,983 reports have been requested by banks since information sharing was introduced in 2010.
Bank customers, who are entitled to one free credit report each year, have made 177,450 requests, indicating they do not put as much emphasis on information sharing as the banks do.
Some companies have started asking applicants for certain jobs to submit certificate of clearance from credit bureaus, driving up the number of individual requests.