Borrowers blacklisted on CRBs hit 3.2 million

More than 3.2 million Kenyans are today negatively listed as loan defaulters with the country’s credit reference bureaus (CRBs) in an economy where job cuts and near stagnant wages has left thousands of people in a debt trap.

Data from the CRBs show that the accounts negatively listed has jumped from 2.7 million last year, most of them linked to mobile digital borrowers.

Non-performing loans in the banking industry rose to 12 percent last year, from 9.5 percent in 2017, the central bank data show, remaining into double digits for the first time since 2007.

This has triggered property seizures by banks and an increase in the number of defaulters reported to one of Kenya’s three CRBs, hurting the borrowers’ chances of being able to borrow more.

“As of Friday last week 3.2 million Kenyans were negatively listed against a total of 11 million records,” said Billy Owino, CEO of TransUnion Kenya in an interview with the Business Daily.

He said the majority of the negative listings were for loans tapped through mobile phones, add-ing that the average loan owed by the defaulting digital borrowers was Sh2,500.

Kenya has witnessed a proliferation of digital lenders targeting the banked and unbanked alike, saddling borrowers with high-interest rates and leaving regulators scrambling to keep up.

Market leader M-Shwari, Kenya’s first savings and loans product introduced by Safaricom and Commercial Bank of Africa in 2012, charges a “facilitation fee” of 7.5 percent on credit regardless of its duration.

On a loan with a month’s term, this equates to an annualised interest rate of 91 percent.

Tala and Branch, other top players in the mobile digital lending market, offer interest rates of 12.7 percent and 7.6 percent respectively for a loan borrowed over one month. The Tala loan equates to 153 percent over a year.

But the defaulted loans from players like Tala and Branch are not captured in the CBK bad debt data because they are unregulated.

This has led to an increase in the number of defaulters reported to one of Kenya’s three CRBs — Metropol, TransUnion and Creditinfo International.

The latest CBK data shows that loan defaults increased 55.6 percent in the three years to De-cember, hitting Sh333.3 billion or 12 percent of Sh2.77 million loans advanced.

Bad loans as a share of total credit advanced stood at 5.6 percent and 6.8 percent in 2014 and 2015 respectively, a pointer to the bankers deteriorating loan book

This emerged in a period when Kenya’s struggling economy has resulted in job cuts and near stagnant wages, leaving thousands of people in a debt trap. Thousands of workers have taken out loans worth billions of shillings, mostly without collateral, for short-term needs like buying furniture, vehicles and urgent family expenses like healthcare.

The mounting defaults are a reflection of the struggles that borrowers are facing in an economy that has witnessed a string of job losses in recent months across nearly all sectors as firms intensify austerity measures to protect their profits.

This has seen workers who had taken loans on the strength of their payslips end up defaulting as they struggle to secure new jobs as companies freeze hiring plans.

Default rates are expected to jump in the wake of the coronavirus outbreak that has hit consumer demand and forced businesses to shed jobs and cut back their operations.

The impact of social distancing and restriction of businesses like schools, bars and restaurants looks has impacted on consumer spending, setting the stage for job cuts and unpaid leave to workers struggling with reduced cash flow.

President Uhuru Kenyatta on March 25 proposed temporary suspension of the law requiring loan defaulters to be listed with the CRBs as part of measures to cushion workers and businesses from effects of the virus.

This will save distressed borrowers who fail to service loans due from April 1.

Kenya has 142 confirmed coronavirus cases, with three deaths, and its critical tourism and farm export businesses have been feeling the pinch from the economic impact of the coronavirus outbreak.

The Markit Stanbic Bank Kenya Purchasing Managers’ Index for manufacturing and services fell to 37.5 in March from 49.0 in February. Readings above 50.0 signals growth in business.

March’s number was the second-lowest in the survey’s history, highlighting the impact of the virus on business and the economy.

This has led management consultants McKinsey & Company to forecast that Kenya’s economy will shrink by five percent if the pandemic is not contained, representing a $10 billion (Sh1 trillion) loss on the country’s output.

“Kenyan firms saw a marked drop in business activity during the month, which was widely linked to the impact of the Covid-19 pandemic on consumer demand,” the data compilers said in their survey report.

“Businesses consequently reduced activity and employment, while demand for inputs fell at the quickest pace since late-2017.”