The Central Bank of Kenya (CBK) has announced the suspension of listing of individuals and businesses owing Ksh. 5 million and below on Credit Reference Bureaus (CRBs) for 12 months. The suspension was initially announced by President Uhuru Kenyatta during his Mashujaa Day speech last month.

The suspension follows publication of a legal notice last week by National Treasury Cabinet Secretary Ukur Yatani barring the listing of negative credit information on borrowers until September 30 next year. According to the President, the move will enable struggling businesses to service their debt in the wake of negative economic effects of the COVID-19 pandemic.

CBK stated that borrowers with loans below Ksh. 5 million that had fallen into arrears between October 1 last year and September 30 this year will also not be negatively listed on the CRBs. The listing freeze comes a year after the government ended a similar moratorium on lenders between April 1 and September 30 last year to cushion borrowers from effects of the COVID-19 pandemic.

“Consequently, loans below Ksh. 5 million that fall in arrears from October 1, 2021 to September 30, 2022, will not lead to the blacklisting of the borrower on the CRBs. Further, CRBs will not include in any credit report, any negative credit information for loans of a customer less than Ksh. 5 million submitted to the CRB from October 1, 2020 to September 30, 2021, for a period of 12 months from October 1, 2021 to September 30, 2022,” read an excerpt from the statement by CRB.

However, CBK acknowledged concerns that the cost of the freeze could outweigh the benefits by forcing lenders to mitigate their credit risk through restrictive and selective lending.

“The suspension could adversely impact the provision of credit by banks to the target group, as they will be unable to distinguish between the good and bad borrowers during the suspension period. This could lead to rationing of credit, as was evident during the period of interest rate caps from 2016-2019,” CBK warned.

President Kenyatta in August 2016 signed into law the Banking (Amendment) Act, 2016 that set the maximum lending rate at a maximum of 4% above the Central Bank base rate. The cap on interest rates was lifted in 2019 following pressure from banks, borrowers and lawmakers.