on’t judge a book by its cover, is what the Central Bank of Kenya (CBK) is saying with its latest move to curb the blacklisting of credit defaulters.

Last week, the CBK released a statement restricting credit reference bureaus (CRBs) and other commercial facilities from using negative credit history to deny Kenyans loans. 

The update requires all CRBs to state at the top of every report that credit scores should not be the sole reason why loans are denied.

A brief history

In 2010, Kenya launched its Credit Information Sharing (CIS) framework which would help banks and other commercial facilities share information about borrowing trends in the country. 

According to the CBK, this framework should have been used to share “positive information” on performing loans—loans that have been repaid in full—thereby allowing more Kenyans to access loans. Instead, CRBs used the framework to share information on non-performing loans—loans that haven’t been repaid and this led to the blacklisting of several Kenyans.

In 2020, the CIS was updated with specific terms to prevent Kenyans from getting blacklisted. For example, the minimum for what could be considered a non-performing loan is Ksh 1,000 ($8). 

That hasn’t stopped blacklisting though. Over six million Kenyans had been blacklisted by CRBs in 2022.

What’s changed?

As part of his manifesto, newly-elected president William Ruto wants to curb blacklisting. Since his swearing-in, Ruto has reviewed CRBs and declared their operations as “punitive” and “arbitrary”.

In September, a meeting with officials from Treasury, Central Bank, Safaricom, Kenya Commercial Bank (KCB) and NCBA led to the announcement that four of the six million Kenyan defaulters would be removed from the CRB defaulters’ list.

And now?

In addition to the statement that must now be included at the top of every credit report released by CRBs, the CBK is also to implement a new system that factors in credit score and other factors into the lending decision.

The apex bank has also urged all Kenyans to honour their loans, and constructively engage lenders when they have difficulty repaying.