The Central Bank of Kenya (CBK) and other stakeholders in the financial and business sector who rely on data from credit reference bureaus to make credit decisions or compile surveys on the country’s default rates should be wary since the CRBs are holding obsolete data on the credit status of borrowers as it is not realtime.
The incorrect or outdated data has been the source of friction between borrowers and financial institutions, leaving the former at the mercy of rogue CRBs. In some cases, data has not been updated for over five years!
Cleared loans and settled arrears continue to wrongly reflect at CRB as overdue, outstanding or unpaid, adversely affecting those seeking credit from banks.
This puts to question the level of regulation of CRBs, who are sometimes accused of abusing their role by reporting inaccurate credit status of borrowers or listing them against trivial balances below Sh20,000.
CRBs are also accused of turning mobile credit status enquiries into a moneymaking scheme yet they charge banks for it.
The borrowing cycle is dynamic; meaning a bad debtor today may transform themselves into good payers tomorrow, especially where default was occasioned by external factors such as depressed economy or even delayed payments by county or national governments.
The role of CRB is to reform defaulters at most and the very least to track habitual defaulters who have refused to reform.
It is habitual defaulters who contribute to banks’ distress. Some amass wealth by abusing the financial system, borrowing with the intent to not repay the loan or taking out loans that are beyond their ability to pay back.
Banks are also at fault for recklessly dishing out loans to people in dire straits, making a bad situation worse.
The problem of outdated credit records can be traced to a slow, cumbersome and manual interface between CRBs and banks. This situation is made worse by the sheer volume of data, with CRBs either failing to act on bank reports or banks not updating the borrowers’ status.
CBK should demand that data held in CRBs’ archives is 30-60 days old or newer to avoid disenfranchising borrowers.
Banks should create a centralised and secure data warehouse hosted by CBK or their association that CRB can accessed in real time.
CBK should order that defaulters owing below Sh20,000 or are aged under 21 years be expunged from the CRB blacklist database since banks hold general provisions of between 2-5 per cent for contingent small defaults.
CBK must also audit the security system of CRB data as the stiff competition in the financial sector may give rise to manipulation or hacking of the confidential information. CRB should not deal with borrowers directly since the data they hold originates from banks.
Joe Musyoki, Kajiado