CRB freeze: Pyrrhic victory for millions of borrowers - Beaking Kenya News

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Friday, 22 October 2021

CRB freeze: Pyrrhic victory for millions of borrowers

 

The imperious army of King Pyrrhus of Epirus, part of present day Greece, defeated the Roman Empire during the battles of Heraclea and Asculum in 280 and 279BCE, respectively. 

Although King Pyrrhus won, his army suffered so many casualties that celebrations were muted, giving birth to the phrase Pyrrhic victory. If borrowers didn’t know this, they certainly will over the next 12 months. 

President Uhuru Kenyatta on Wednesday ordered lenders to stop listing defaulters of Sh5 million and below on Credit Reference Bureaux (CRBs) to allow them to access loans. 

“To further augment the interventions we are making to give Micro, Small and Medium Enterprises reprieve, I order the National Treasury, in consultation with all stakeholders, to secure the following additional measures to provide further space to the recovery of MSMEs,” he said.

The President also ordered banks and other financial institutions to restructure loans. Last year, a similar moratorium between April and September was issued by the Head of State.  

Faced with increased risk of defaults as Kenyans no longer feared being listed, institutions reduced lending to risky customers while others stopped entirely, dealing a huge blow to borrowers.   

Digital Lenders Association of Kenya (DLAK), which represents about 20 mobile lenders, had earlier this year painted the picture of what borrowers could be facing in the coming months. 

DLAK said those who took loans during the moratorium on CRBs listing did so with no intention of paying back, forcing lenders to loan to only the most credit-worthy. 

“We stopped lending in March through April and May, but we had to make decisions so we wrote off all bad loans. We are only lending to the best customers, those who understand that they have to pay,” said DLAK chairman Kevin Mutiso said.

“Many were borrowing with no intention of paying back. It’s an unwise decision (the moratorium) because in the long-term, it will hurt borrowers. We’ll only be able to serve the best borrowers,” he added. 

At the time, a borrower lamented how he had been turned away by multiple digital lenders, who had previously served him well.

“It’s strange that no digital lender seems willing to extend me credit, yet I’ve been borrowing successfully for a long time. I have no idea why my limit has now been reduced to zero,” Mr Humphrey Ashiono said.  

Digital lenders

Mr Mutiso, however, said they will keep lending this time using different parameters. 

“The last time we were not prepared but we are ready to keep lending despite the moratorium. We have identified other ways to identify the best borrowers without relying on information from CRBs,” he said. 

The highest loan from digital lenders is Sh80,000. They serve about seven million customers monthly, underlining the increasing role lenders are playing in supplementing cash available to households for sustenance. 

There were many defaulters last year, especially with bank loans given to individuals for household use, giving pointers on where lenders might opt not to put their money over the next year.   

The Central Bank of Kenya’s (CBK) Bank Supervision Annual Report, 2020 shows that banks have 10.8 million accounts of borrowers, who were given loans for personal and household use, making up 28 per cent (Sh843.5 billion) of total cash lent out. 

Borrowers defaulted on Sh70.1 billion of household loans during the year, the second highest only behind funds taken for trade, which was one of the most affected sectors by the pandemic. 

Meanwhile, of Sh3.05 trillion loaned out, Sh638 billion (20.9 per cent) was given to MSMEs. This is an increase from Sh414 billion that was lent out to these small businesses just three years earlier, underlining the risks exposed to banks should they witness increased loan defaults following the freeze on CRBs listing. 

Of the Sh638 billion outstanding MSMEs loan balance as of December last year, commercial banks had given out Sh605 billion (95 per cent), while microfinance institutions lent out Sh33 billion (five per cent). 

Kenya Bankers Association (KBA) chief executive Habil Olaka could not be reached for comment on their views on the moratorium, how it will affect the level of their non-performing loans and ultimately lending choices.  BY  DAILY NATION  

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