Kenya’s Lending Woes Worsen As 14 Million Loan Accounts Enter Black Book

Between April and June last year, when the normal activities that constitute human existence were put on hold across the globe, some 1.72 million Kenyans lost their jobs and many others took significant pay cuts.

It was during this period that the Kenyan government imposed a lockdown to curb the spread of the coronavirus.

As part of measures adopted to cushion the economic effects and the financial strain on people, Kenya’s “loan-loving” population was given a lifeline.

In April, the regulator of Kenya’s banking industry, the Central Bank of Kenya (CBK), declared a 6-month suspension of CRB listings to ease the pressure on borrowers hit by the economic impact of the pandemic.

Apparently, the cash crunch caused by Covid caused Kenyans to take loans like never before. But it seems not many have been able to meet up with repayment.

The result? The number of loan accounts that have defaulted and have now been blacklisted has hit 14 million in Kenya.

According to data by Metropol; one of the three licensed CRBs along with TransUnion and Creditinfo International, the number of loan accounts in arrears for more than 90 days had jumped to 14,035,718 by January this year, up from 9,673,258 in August 2020.

That’s a 45 percent jump in the five months between August and January after the Central Bank of Kenya (CBK) lifted a three-month moratorium.

For the sake of clarity, credit-reference bureaus (CRBs) in Kenya, just like everywhere else, are basically the folks that determine which borrowers are worthy of credit. A CRB listing is essentially a blacklisting.

It’s like putting the name of a borrower who has defaulted on a loan in a black book, and this damages the borrower’s ability to secure further loans in the future. CRBs usually collect and research individual credit information and sell it for a fee to creditors, so they can make decisions on granting loans.

When the period of suspension of CRB listing expired in Kenya last October, lenders actually offered a 90-day grace period (starting from October 1) for defaulters to start repaying their loans or get listed with CRBs. Obviously, the latter was mostly the case.

With 14 million names now in the black book, Kenya appears to have sunk deeper into the problem that caused the CBK to revoke the approval of digital lenders to share data with CRBs and exempt those who had borrowed less than KES 1 K (USD 9.10) from being listed.

This move which happened last year was expected to bring the number of negatively listed borrowers down. But clearly, that hasn’t been the case.

The “lending problem” in Kenya is an ongoing issue that has been hammered on for quite some time. The recent explosion of digital lenders in the country is often blamed for the continued worrying rise in blacklistings and ruined credit histories.

It is common rhetoric that hundreds of digital lenders targeting the banked and the unbanked alike are wooing Kenyans with unbelievably quick, collateral-free loans while choking them with high-interest rates. This has left regulators scrambling to keep things under control.

At some point last year, the CBK barred 337 unregulated digital mobile lenders from forwarding the names of loan defaulters to CRBs. Business Daily Africa reports that an internal memo showed that only 39 banks, 14 microfinance banks, 1,353 unregulated SACCOS, 164 regulated SACCOS were allowed to continue forwarding names to CRBs from the end of August 2020.

But beyond the menace of digital lenders that have adopted predatory practices, there also appears to be a crisis in the banking sector where unpaid loans taken by both individuals and institutions have climbed to levels last seen in 2007. The “Covid effect” has been blamed for most of it.

It’s been reported that borrowers defaulted on KES 73.05 Bn (USD 664.9 Mn) bank loans in the 10 months to December alone. The CBK’s current data shows that the value of loans defaulted hit KES 423 Bn (USD 3.85) or 14.1 percent of the total KES 3 Tn (USD 27.3 Bn) loan book. This represents a sharp rise from KES 351.73 Bn (USD 3.2 Bn) which was the value of defaulted on as of the end of March 2020.

The KES 71.26 Bn (USD 648.7 Mn) surge in defaults between the end of February and December towers above the KES 5.4 Bn (USD 49.1 Mn) worth of loans that fell into default status in a similar period in 2019, and it also dwarfs the KES 31.1 Bn (USD 283.1 Mn) worth of loans defaulted on in 2018.

In addition, borrowers extended repayment periods on loans worth KES 1.63 Tn (USD 14.8 Bn) by the end of December; the equivalent of 54.2 percent of the banking sector’s total loan book.

This means that even as borrowers applied to defer payments on more than half of the current loan book, the number of loans for which principal or interest has not been paid for 90 days or more is off the charts.

As per the words of CBK Governor, Patrick Njoroge, there’s a good chance that the loan situation in Kenya will get worse before it gets any better.

Featured Image Courtesy: Kenyayote