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Kenya bars 337 digital mobile lenders from CRB listing
In Kenya, more than 337 unregulated digital mobile lenders and micro financiers have been barred from forwarding the names of loan defaulters to Credit Reference Bureaus, a move that aims to cushion distressed businesses and households from the effects of the coronavirus pandemic. This comes at a time when the banking sector is struggling with mounting unpaid loans whose share has risen to the highest level since August 2007. Economic Analyst, Odhiambo Ramogi joins CNBC Africa for more.
Tue, 13 Oct 2020 14:45:43 GMT
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AI Generated Summary
- Central Bank of Kenya bars over 300 unregulated micro lenders from submitting loan defaulters' names to credit reference bureaus to mitigate the impact of loan defaults on businesses and households.
- The rise in loan defaults, currently affecting 3.2 million Kenyans, can be attributed to cultural factors such as increased sports betting among the youth, lack of economic growth, and employment opportunities since 2017.
- The lack of stringent regulations in Kenya's credit market has led to challenges for both borrowers and investors, prompting the need for comprehensive regulatory frameworks to ensure financial stability and accountability.
The Central Bank of Kenya has taken a decisive step to address the growing issue of loan defaults in the country. Over 337 unregulated digital mobile lenders and microfinanciers have been prohibited from submitting the names of defaulters to credit reference bureaus (CRBs). This move comes as a response to cushion distressed businesses and households from the economic impacts of the COVID-19 pandemic. The decision follows a temporary suspension of listings at CRBs by financial institutions and fintech firms offering credit facilities through mobile phones, which was initially effective from April 1st to September 30th. However, with the suspension not being renewed for the following months, defaulted loans after April 1st can now be listed with CRBs, leading to concerns about the arbitrary and unregulated listing practices.
Economic analyst Odiam Bo Ramoghi shed light on the situation, highlighting that approximately 300 unlicensed fintech firms have been exempted from the suspension, raising questions about the credibility of the listed defaulters. The Central Bank has also specified that only amounts exceeding 1,000 Kenyan shillings can be reported to CRBs, indicating a threshold for loan listings. This regulatory intervention aims to address the challenges posed by the 3.2 million Kenyans currently listed at CRBs, which accounts for nearly 5% of the total population. The number of defaulters has risen from 2.7 million in the previous year, reflecting a deteriorating economic landscape and growing financial vulnerability among citizens.
Ramoghi attributed the increase in loan defaults to several factors, including a cultural shift towards materialistic pursuits such as sports betting among the youth. He pointed out that the lack of economic growth and employment opportunities since 2017 has fueled a culture of borrowing for survival. Major telecom companies like Safaricom have capitalized on this trend by offering instant loan products like M-Shwari and Fuliza, catering to the urgent financial needs of Kenyans. The economic strain exacerbated by the pandemic has further compounded the financial challenges faced by the populace, leading to a surge in loan defaults across the country.
Despite the efforts of unregulated micro lenders to meet the demand for quick loans in Kenya's credit market, the lack of proper regulation has resulted in adverse consequences for both borrowers and investors. Ramoghi acknowledged the negative impact on investors but emphasized the necessity of regulatory frameworks to prevent misuse of financial opportunities and protect the interests of borrowers. While some policies have caused unintended consequences, such as listing young individuals before they secure employment to repay education loans, the overall aim is to bring stability and accountability to the lending sector. The call for comprehensive regulation in the microfinance industry remains crucial to safeguard the financial well-being of both lenders and borrowers in Kenya.
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