It will soon be mandatory for all Savings and Credit Co-operative Society (SACCO) loan defaulters to be blacklisted by Credit Reference Bureaus (CRBs).
This follows an approval by the Senate of a Bill that seeks to amend the SACCO Act 2018 to provide the required legal muscle. At present, only a few SACCOs have succeeded in amending their by-laws to allow blacklisting of Sacco loan defaulters with CRBs.
However, these credit unions must first seek approval of the Central Bank of Kenya (CBK) and obtain consent from their members before sharing the credit information.
While SACCOs are obligated to share positive credit information among themselves, they can only access the CRB platform under the third parties’ category.
The Bill, which originated from the National Assembly in October, 2019 now places SACCOs in the same group as banks and microfinance institutions, required to share all data on their customers, with CRBs. The SACCOs, however, be required to issue pre- and post-listing notices to their customers as required by law.
“A sacco society shall, in the ordinary course of business exchange information on performing and non-performing loans as may be specified by the authority and to such extent as may be prescribed through regulations made under the Act.”
If the Senate Bill is signed into law, it will be end of the road for unscrupulous SACCO members, who have the habit of taking loans from their societies with the sole intention of not repaying.
“The move by Saccos to share credit information of their members with CRBs will improve the quality of assets held by Saccos and encourage borrowers to repay their loans. The negative consequences of being blacklisted include the fact that no credit provider including commercial banks will be able to deal with anyone whose name has been mentioned as a defaulter,” said Daniel Marube, Chief Executive Officer, Co-operative Alliance of Kenya (CAK) in a previous interview.
Once a loan defaulter is listed with CRBs, the affected person remains barred from accessing any credit for a period of five years even after clearing the outstanding amounts.
Financial Analysts expect SACCOs to experience an improvement in the quality of their loan book if this Bill becomes law.
The loan repayment history for many SACCO members has been a bad experience in the past and thus enlisting with CRBs will definitely change the loan repayment landscape.
Top executives in the SACCO industry argue that the issue of defaulting on loan repayments is a non-co-operative behaviour and has been a serious impediment to the financial stability of this sector.
Non-payment, therefore, means those who guarantee others are forced to shoulder the financial burden when the borrower disappears.
“While there are cases where one becomes a loan defaulter on account of death or permanent disability. Under these circumstances, insurance companies foot the bill. But there are those who outright refuse to repay the loan given and this is why SACCOs need to blacklist such individuals with CRBs, said Mr Nelson Kuria, former Chief Executive with CIC Insurance Group, a leading insurance provider to the co-operative sector in Kenya.
From an ethical point of view, listing of serial defaulters with CRBs is expected to bring back faith and good behaviour within the Sacco environment since loan guarantors are better protected.
According to the Credit Reference Bureau Regulations 2013, non-performing loans (underpaid for 90 days) will be listed with CRB. Financial institutions are supposed to share credit information of their customers with CRB to guarantee sound financial services delivery.
Sacco Society’s Authority (SASRA), the sector regulator has already signed a memorandum of understanding (MoU) with other financial regulators to be sharing credit information. The other financial regulators include Insurance Regulatory Authority (IRA), Retirement Benefits Authority (RBA), Capital Market Authority (CMA) and Central Bank of Kenya (CBK).
Figures from the Sacco Societies Regulatory Authority (SASRA) indicate that in 2018, there there was an increase in the non-performing loan ratio to 6.30per cent from 6.14per cent recorded in 2017. The increase was mainly due to reported increases in the provisioning for loans under the doubtful and loss categories which increased from Sh 4.92 billion in 2017 to Sh 5.27 billion in 2018, and from Sh 5.47 billion in 2018 to Sh 8.99 billion in 2018 respectively.
“Blacklisting defaulters is good. There are borrowers who will not repay their loans if there isn’t an efficient and ruthless mechanism in place. Sometimes it is not just reckless borrowing but also careless lending that is not rational and is emotional rather than fiscal, not well researched or thought out,” said Edwin Otieno-Chairman of Elimu Sacco Society Limited in a previous interview.
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