The CRB ‘Blacklist’ Myth: What It Means to Be Negatively Listed 

The effectiveness of the Kenyan credit information sharing system has come under scrutiny from the public and the government in recent days. 

President Uhuru Kenyatta’s administration made a number of strides in streamlining the credit information sharing system. For instance, in March 2020, at the height of the pandemic - the president directed CBK to come up with regulations that barred listing of those who borrow amounts of less than Ksh1,000. 

In October 2021, as the economy recovered, President Kenyatta directed that borrowers defaulting on loans of less than Ksh5 million would not be negatively listed on CRB. The directive was to last for a year and lapsed at the end of September 2022. 

At the same time, the CBK has greatly cut on the number of lenders allowed to report negative information to the bureaus. In 2020, a total of 337 digital lenders and microfinance institutions were locked out of the CRB system after they were found to have been operating irregularly. 

In April, CBK came up with further regulations, requiring licensed digital lenders to issue a written 30-day notice to a defaulting borrower before submitting the name to the CRBs. 

Amid the reforms,  President William Ruto’s administration has promised to double down on a ”complete reform” of the credit information sharing system that some feel has locked out many from mainstream credit access. 

There has been particular attention on the Credit Reference Bureaus - private companies regulated by the Central Bank of Kenya that collect and share credit information with financial and other lending institutions. 

Also Read: 4 Million Names to be Delisted From CRB as Fuliza Bows to Pressure

“Instead of saying you are in or out, we should have a credit scoring mechanism so we can have a graduated list from the least to the best so that everybody can have a chance even if you are somewhere at the bottom. You can always work your way up as you learn the ropes. 

“What we are asking is we do not want credit listing to be an all-or-nothing, in-and-out engagement. We want credit listing to be a facility that gives everybody a chance to be their best in their own time,” President William Ruto stated, days after assuming office. 

The concern has mainly been with regard to the 6 million Kenyans who are negatively listed by the CRBs. The misunderstanding has been that the negatively listed individuals are in a “blacklist” that permanently disqualifies them from accessing credit. 

However, the reality is that there has been a misunderstanding of the Credit Information System - and particularly the operations of the CRBs. 

CRBs operate under CBK Regulations which establish a score based system - as opposed to the erroneous perception of a blacklist. 

The bureaus offer a credit sharing platform where lenders - such as banks, SACCOs, Microfinanciers, hire purchase businesses, and other institutions can make an informed decision on the risk associated with lending to a certain individual or business. 

Origin of the CRB “Blacklist”

‍According to the Kenya Bankers Association, the history of Kenya’s credit sharing system helps explain the growing fear of a “CRB blacklist”. 

Until 2008, the credit information system was largely done informally.  Banks had a peer-based system where they would keep a list of borrowers with negative credit information and share amongst themselves. 

In 2008, when CRBs were introduced through the CBK’s CRB regulations of 2008, the banks continued sharing negative information for the first five years of their operations. 

Ndiritu Muriithi, an economist who served as an assistant minister between 2008 and 2012, noted that there was a fear among banks that sharing positive information would result in losing “the best customers”. 

For example, if you took a loan and repaid on time, your bank would not share your credit history with other banks. However, if you took a second loan and failed to pay, your name would be shared with the other banks - flagging you as a defaulter with no regard to your previous positive repayment history. 

The list, therefore, became akin to the infamous “blackbook” in Kenyan secondary schools where only the most notorious infractions were recorded. 

However, the CRBs and the credit sharing system has undergone major reforms including a shift from a “blacklist” to some kind of an open book that has all your credit activities. A score is then calculated based on your history of repayment or default. 

How the CRB Score System Works

The common call among the political class is to do away with the “blacklist” and come up with a point system. The score based system, however, is already in place and gives each borrower a score of between 1 and 999 where one is the lowest mark with the highest risk of default - and 999 is the highest score with the lowest chances of default. 

Also Read: How to Check Your CRB Report and Understand It 

Scores of below 400 point to an existing defaulted credit obligation. The scores may be lower than 400 depending on the number of days the debt has been outstanding - or the number of outstanding loans. 

Once the defaulted amount is paid, the score does not immediately return to your previous position and incrementally rise above 400 over a period of 12 months - assuming a positive credit history is maintained. 

Although you may not have a history of default, there are other reasons that may cause your credit score to be low and include:

• You have multiple outstanding loans (you are servicing multiple loans)
• You have missed past loan instalments (failing to pay an instalment on time does not automatically lead you to be negatively listed but lowers your score)
• You have taken too many unsecured loans over the past 12 months 
• You have not taken any loan or taken too few to create adequate data

Perks of a high credit score

A high credit score is desirable for the following reasons:

• You can negotiate a lower interest rate since risk of default is low
• You access some credit services that may not be available to everyone - like a higher credit card limit - higher loan amount - unsecured credit etc
• Some employers may prefer you if there is a tie with another potential employee with a low credit score although this may be extremely rare locally

What It Means When You Default

If your credit score falls below 400 - most formal lending institutions will not give you any unsecured loans until the defaulted amount is cleared. 

You also cannot access a CRB clearance certificate if the defaulted amount is not cleared - this can affect your job application chances in situations where employers require the certificate.

Various institutions will have different policies on borrowers who have a history of default (those who were once negatively listed but have since cleared the loan).

Some will give credit immediately after you have cleared, others will await a period of upto five years before giving you credit, while others will restrict you to secured loans - borrowing where there is collateral. 

However, there are many other lenders that will still consider giving you both secured and unsecured loans even when you are negatively listed. 

Also Read: Things to Consider Before Taking a Personal Loan in Kenya

Areas of Contention

Despite the changes made in the past 14 years, experts have continued to recommend more adjustments. Some of the issues raised include:

• How long should the negative list linger on the borrower’s profile? 
• If you have a high score and you happen to default on a small amount, how is the overall rating affected so as not to put you in the same box with the serial defaulters ?
• Do expunged erroneous records affect your credit score and should they?
• The CBK introduced regulations that provide fines for lenders that deny borrowers credit on account of a negative CRB listing. Can such fines be made public to increase accountability and perception of justice?

Wrapping Up

The Credit Information Sharing System in Kenya is relatively young. CRBs have been in operation for only 14 years. 

However, stakeholders are regularly making changes to the operations to make them more effective in unlocking credit access to the majority of Kenyans. 

While there are arguments on how CRBs should operate, there is consensus between the government and the industry players that a strong and fair credit information sharing system will benefit Kenyans by making affordable credit more accessible. 

It will, therefore, be interesting to see how the credit information sharing system will change in the coming months as promised by President Ruto’s administration.