The Credit Reference Bureau (CRB), will not be listing Kenyans who have defaulted on loans below 5 million shillings until September 2022.
This follows a directive issued by President Uhuru Kenyatta to the Treasury as a move geared at supporting credit disbursement to the private sector in efforts to aid a full-circle economic recovery.
“Some of the micro, small and medium enterprises (MSMEs) have struggled to get back to a sound footing following the adverse effects of the pandemic,” Uhuru said.
The directive further stated that loan defaulters of 5 million shillings and below, who were already listed with the CRB from October 2020 to date, will not have the listing included in credit reports for the next year.
The measures are a comedown to the country’s credit industry, which is already suffering from the issuance of bad loans.
Banks and other lending institutions, since the outbreak of the pandemic, have been struggling with non-performing loans.
After the outbreak of the Ccovid-19 pandemic in 2020, local lenders took a huge hit when the rate of non-performing loans rose from 12 percent recorded in 2019 to about 15 percent by June.
As a result, many defaulters were blacklisted, a move that saw the government issue a 6-month suspension of CRB listing to cushion people from the effects of the pandemic.
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In January, however, lending institutions began listing defaulters on CRB again. The resumption of the listing followed the expiry of the three-month notice period for blacklisting borrowers of unpaid credit.
Loan defaulters had been given 90 days from 1st October 2020 to start settling their dues.
Since then, the non-performing loans gradually improved, particularly due to the slow opening of the global economy and business continuity.
Against the international credit rating agents’ prediction that the NPL rate would be higher than 15 percent in 2021, data from CBK shows a significant improvement.
The rate of non-performing loans in the country eased further by 10 basis points in August to 13.9 compared to 14 percent in June.
Repayments and recoveries were noted in the hospitality and construction sector, some of the economic sub-sectors that were highly affected by the pandemic.
The announcement to remove the defaulters from the list could see an increase in the NPLs ratio.