I met Fred** a couple of weeks ago. Fred has a decent salary but however has gotten embroiled in the consumer culture i.e. how well you are doing is associated with how much money other people perceive you are able to spend. He is very conscious about having the right cars, the right brand of clothes, living in the right neigbourhoods etc. However living up to other people’s financial standards is never ending.It is never good enough and there is always something else you need to do or buy that will make you look better in the eyes of the people you seek this approval from. Fred was spending what he earned but was also borrowing to make “his understanding of ends” meet. Fred had been taking personal loans from various institutions but this way of life had overcome him so much that he continued borrowing even when he could not meet the repayments. Despite defaulting on some of his payments, Fred would simply walk into another institution, whip out his pay slip and borrow yet again. After all the banks didn’t know he had other loans and he would simply just ignore calls from collection departments. The loans were unsecured so the financial institutions had no recourse. They could not catch up with him then. But what about now?
A few years back the Fred might have been able to go on borrowing because the banks did not have information about his previous loans. The bad news for Fred is that getting away with this kind of behavior has come to an end. The good news for him is that there is serious motive to get debts and lifestyle under control. Credit Rating has come to Kenya through regulation by the Central Bank and an organisation called the Credit Reference Bureau (CRB). What does this really mean for Fred? If he has defaulted on any loan for over 90 days, the bank will black list him on a database managed by the CRB. When Fred walks into another bank and tries to apply for any loan, they will look up his credit history and will note he has previously defaulted on payment with other institutions. According to the information they now have at their disposal, the probability of Fred paying them back their money is low. Neither will they or any other financial institution lend him as more and more of them, even at the micro finance level are starting to check up credit history of borrowers. This effectively means that at the moment banks are sharing information regarding their bad loans i.e. people who have defaulted on the loans. It gets worse, if Fred has been listed by a bank, it will take him 7 years from the time he makes good on the loan, to get his name off the blacklist. So even though he goes and completes his repayments and turns around his spending behavior he will have to wait 7 years until he can access any loans (even if it is for a good cause like mortgages) or access them at reasonable interest rates. To put this further into perspective, default on small credit card payment for more than 90 days, you will run your ability to buy a home in the next seven years.
My advice to Fred. Get a credit report from the CRB as it would be useful to understand and come to terms with your credit status. Anyone can get access to their own credit report for around Kes 650. For the debts that have been listed by CRB, they probably have already been referred to a collection agency. You will need to agree on the term and the amounts with the agency. This may differ from the original terms with the banks. The sooner you pay them off the better because you can start your 7 year recovery period. In our debt counseling the main item we look at is the budget and spending plan. This is the time for luxuries to be minimized. It makes quite a difference to the speed of your recovery when you cut off Cable TV and use that money to make extra repayments. If there are any debts you have that you have not defaulted on or are still under the 90 day period, ensure you are at the very least making the minimum repayments on all to avoid being listed with the CRB. The days of taking credit and running has come to an end. Borrow only what you can and intend to repay. The banks no longer have to chase you. Like has happened in other countries. it is only a matter of time before landlords and utility companies start using this same system to assess your ability to pay for services. Any creditor will be able to catch you because they now can.
Waceke Nduati-Omanga