Introduction
1. The Petition dated 8 th November 2021 was amended on 2 nd March 2023 and is supported by the 1 st Petitioner’s affidavit in support of similar date and a further affidavit dated 10 th November 2024 . The Petition challenges Regulation 18(7) of the Banking (Credit Reference Bureaus) Regulations , 2020 for being inconsistent with Section 31 of the Banking Act and Articles 10, 27 and 46 of the Constitution.
2. On this premise the Petitioners seek the following reliefs against the Respondents:
a) A declaration that the amendment of the Banking (Credit Reference Bureaus) Regulations, 2020, by introducing Regulation 18(7) is inconsistent with Section 31 of the Banking Act Cap 488 Laws of Kenya and Articles 10, 27 and 46 of the Constitution, therefore, null and void.
b) A declaration that the amendment of the Banking (Credit Reference Bureaus) Regulations, 2020 by introduction of Regulation 18 (7) violated Article 10 of the Constitution thus unconstitutional for want of public participation.
c) An order lifting the suspension barring credit only Microfinance Institutions and digital lenders from participating in the Credit sharing mechanism to resume sharing credit information through CRBs unless specifically barred by the CBK upon exercise of fair administrative process.
d) An order be issued setting aside the Central Bank of Kenya’s directive vide Circular No 8 of 2020, dated 14 th April barring credit only Microfinance Institutions and digital lenders from participating in the Credit Information Sharing Mechanism through Credit Reference Bureaus.
e) Costs of this Amended Petition.
Petitioners’ Case
3. The Petitioners state that following the Corona virus pandemic announcement in the Country on 13 th March 2020, a consultative meeting of various stakeholders in Government and the private business sector including the Governor, 3 rd Respondent, Chief Executive Officers of Financial Institutions and business entities, mobile telephone service providers among other private entities, was held at Statehouse Nairobi on the 18 th March, 2020.
4. The Petitioners aver that the purpose of the meeting was to come up with emergency measures such as restructuring of loans, suspension of listing of credit information with the Credit Reference bureau and increased amount of mobile money transactions to keep the economy afloat during the partial lockdown and suspension of several business operations.
5. The Petitioners depone that these measures were actualized vide a Circular dated 27 th March 2020 addressed to all banking institutions and financing companies by the 3 rd Respondent. Particularly, the Circular issued guidelines for the implementation of the emergency measures on loan restructuring and compliance.
6. Furthermore, it is deponed that in April 2020, the 3 rd Respondent vide Circular No.8 of 2020 directed the 1 st , 2 nd and 3 rd Interested Parties not to receive any credit information, whether positive or negative from credit only microfinance institutions and digital lenders.
7. Soon thereafter vide a Gazette Notice No.3096 dated 8 th April 2020 and issued on 14 th April 2020, the 2 nd Respondent suspended sharing of negative credit information for the period with effect from 1 st April, 2020 to 30 th September, 2020.In particular, banks, mortgage finance Companies, microfinance banks and Sacco societies were barred from submitting to credit reference bureaus any negative credit information on a non performing loan of a customer whose loans were performing for the period prior to 1 st April, 2020, third party Credit information providers not to submit to any credit Reference Bureau any negative information on a customer which qualified as such from 1 st April,2020 and Credit Reference Bureaus shall not include in any credit report any negative credit information specified above . It is noted that this directive was anchored on Regulation 18 (7) of the Banking (Credit Reference Bureau) Regulations, 2020.
8. The Petitioners assert that as a result of the undertaken measures, several businesses were hit hard, being forced to scale down and some closing down completely, such as Micro, Small and Medium enterprises (MSMEs) who depended on the credit rating to access loans. Furthermore, it is averred that owing to the implication of the directive, commercial banks, mortgage finance companies, microfinance banks and other lenders halted lending for fear of default which further affected the already ailing business environment.
9. The Petitioners state that subsequently, the 4 th Respondent vide a Press Release on 1 st October 2020 announced the lapse of the six-month suspension period on listing of negative credit information of borrowers with the Credit Reference Bureaus. It is stated however that the directive barring the 1 st , 2 nd and 3 rd Interested Parties from receiving credit information from credit only microfinance institutions and digital lenders, was not lifted and persists to date.
10. It is claimed that the Banking (Credit Reference Bureau) Regulations, 2020 which conferred power to the 2 nd Respondent to suspend listing by Credit Bureaus, was amended and published on the same date as the suspension notice, vide Gazette Notice No 55 on 8 th April 2020.These Regulations are argued to have effectively repealed the Banking Act (Credit Reference Bureau) Regulations, 2013.
11. The Petitioners are aggrieved that the Respondents in amending Regulation 18 of the Banking (Credit Reference Bureau) Regulations, acted contrary and not in compliance with Article 10 of the Constitution. This is since the impugned Regulation was introduced without involvement of all the stakeholders which include the Micro, Small and medium Enterprises-MSMEs, and members of the Public. Furthermore, the impugned Regulation is claimed to be inconsistent with the primary legislation that is, the Banking Act under Section 31.
12. The Petitioners as well aver that on 20 th October 2021, the President during his speech, while acknowledging the MSME’s role in the economy, issued a directive suspending negative listing for non-performing loans capped at Ksh.5,000,000.00 for a period of one year ending in September, 2022.It is argued that the President’s directive also affected listings of borrowers with loans below Ksh.5,000,000, from October, 2020.They assert that this means that their rating would be inaccurate for a period of two years ending September, 2022.
13. The Petitioners state that in a bid to enforce the President’s Directive, the 2 nd Respondent, vide Legal Notice No 225 dated 5 th November, 2021, published a number of directives on suspension of exchange of certain aspects of negative credit information as follows:
a) Banks/mortgage finance companies, microfinance Banks and Sacco Societies shall not submit to any Credit Reference Bureau, any negative credit information on non-performing loan of a customer of an amount less than Kshs. 5,000,000.00 where the loans were performing on September 30 th , 2021 but became nor performing on 1 st October, 2021.
b) 3 rd Party Credit information providers shall not submit to any credit reference bureau any negative credit information of a customer on a loan of an amount less than Kshs. 5,000,000.00 which qualified as such from October, 1 st , 2021.
c) Credit Reference Bureaus shall not include any credit report, any negative credit information for loans of a customer less than Kshs 5,000,000.00 submitted to the Credit Reference Bureaus from 1 st October, 2020 to 30 th September, 2021, and any negative credit information specified in (a) and (b) above.
14. The Petitioners contend that Legal Notice No. 225 was issued pursuant to the provisions of Regulation 18(7) of the Banking (Credit Reference Bureau) Regulations, 2020 whose constitutionality is challenged in this Petition. It is stated that thereafter the 3 rd Respondent seeking to enforce the President’s Directive, proceeded to implement the Moratorium through its Circular No. 5 of 2021 dated 8 th November, 2021 alongside a Press Release of even date titled Suspension of the Listing of Negative Credit Information for Borrowers .
15. According to the Petitioners the President in issuing his Directive acted unilaterally and arbitrarily without prior consultation and in total disregard of the national values and principles of good governance. They equally argue that the President’s action not only usurps the 3 rd Respondent’s role but also discriminates against MSMEs access to credit, in violation of Article 27 of the Constitution on equality and freedom from discrimination which in turn violates their social and economic rights.
16. The Petitioners are concerned that if the President’s Directive is implemented, it will cause a complete business shut down for individual and small-scale business borrowers as well as the Credit Reference Bureaus who mainly depend on credit reference information data.
17. As such, the Petitioners bring this Petition against the Respondents to challenge the constitutionality of the Presidential Directive on the suppression of negative listing of Borrowers by Credit Reference Bureaus and the legality of Regulation 18 (7) of the Banking (Credit Reference Bureaus) Regulations, 2020 which was enacted without public participation prior to its amendment. Additionally, this Directive is argued not to be anchored in law thus an illegality.
18. Further to this, the Petitioners assert that the 3 rd Respondent’s Directive indiscriminately barring credit only microfinance institutions and digital lenders, contravenes Article 46 (b) of the Constitution and is an unfair administrative action as the lenders affected were not engaged or informed of their specific violations and given an opportunity to defend themselves before being barred.
19. The Petitioners further inform that while the instant Petition appears to be similar to one, HCCHRPET/E255/2021 , the issues and the cause of action in the two Petitions are distinct and distinguishable. They also state that Hon. Lady Justice M. Thande on 28 th August 2023 delivered a Judgment in HCCHRPET/E255/2021 .
1 st , 2 nd and 4 th Respondents’ Case
20. In reaction to the Petitioners’ case and Application, these Respondents filed Grounds of Opposition dated 25 th November 2021 on the basis that:
i. A grant of the conservatory orders sought at this stage would offend the presumption that every legally enacted statute is constitutional, noting that such a presumption can only be rebutted upon full hearing and determination of the Petition.
ii. The strict interpretation of Article 23(3)(c) is that a relief for conservatory Orders is prima facie, only available when a party is alleging that a right or fundamental freedom in the Bill of Rights has been denied, violated or infringed or is threatened. The mere allegation that the Petitioners fundamental rights have been contravened is not of itself sufficient to entitle the Petitioners the conservatory remedies sought. The Petitioners must demonstrate real danger so imminent and evident, true and actual and not fictitious; so as to deserve immediate redress by this Court.
iii. As such and based on the Notice of Motion application, the Petitioners, have not in any way demonstrated that the enactment of the Banking (Credit reference Bureau) Regulations, 2020 violated the Constitution and their rights.
iv. From a reading of the application and the Petition, it is evident that the issue of contention is whether there was public participation conducted before Respondents opted to enact the Banking (Credit Reference Bureau) regulations, 2020. This issue cannot be decided at this interlocutory stage as there is need for this Court to interrogate the principles of public participation which can only be aptly decided at the hearing of the main Petition.
v. There was inordinate delay in filling the Application challenging the Constitutionality of Banking (Credit Reference Bureau) Regulations, 2020.
vi. It is clear and as admitted under paragraph 25 and 26 of the Supporting Affidavit sworn by the 1 st Petitioner herein, the Presidential directive of 20 th October, 2021 and the Legal Notice No. 225 of issued on the 5 th November 2021 was pursuant to the provisions of Regulation 18(7) of the Banking (Credit Reference Bureau) Regulations, 2020 which were enacted in April 2020. Therefore, if at all there were any rights violated, by the directive and Gazette notice then those rights were violated way back in April 2020. The Petitioners have lived with the violations, for more than one year before moving the Court. It will do no more harm if they wait for the conclusion of the Petition, which will finally determine if indeed any rights have been violated as it was held in the case of Okiya Omtatah Okoiti v Kenya University Teaching, Referral & Research Hospital & 2 others; Kenyatta University Council & 2 others (interested parties) [2019] eKLR .
vii. The Petitioners have not demonstrated any prejudice or irreparable harm, damage or injury likely to be suffered if the conservatory orders sought are not granted. There is also no evidentiary proof that the grant of conservatory orders sought would enhance constitutional values and objects specific to the rights and freedom in the Bill of rights.
viii. The orders sought in the application are final in nature and this will require the Court to go into a conclusive or definite finding which is tantamount to pre-emptying the Petition. Moreover, this will go against the principles, purpose and intention of an application for conservatory orders.
ix. The Petitioners have not demonstrated that if conservatory reliefs sought are not granted, the petition will be rendered nugatory.
x. It is in the interest of the Public that this Application be dismissed.
3 rd Respondent’s Case
21. The 3 rd Respondent filed its Replying affidavit sworn on 18 th November 2021 by its General Counsel, Kennedy Kaunda Abuga.
22. To commence with, it avers that Section 31(3)(b) and (c) and (4) of the Banking Act empowers the 2 nd Respondent to promulgate Regulations on the establishment and operation of CRBs for the purpose of collecting credit information on clients of institutions licensed under the Act, the Microfinance Act and the SACCO Societies Act and for the sharing of such credit information. Equally, the 3 rd Respondent under Section 57 of the Central Bank of Kenya Act is empowered to prescribe Regulations, issue Guidelines, Circulars and directives to institutions including CRBs for the purpose of giving effect to provisions of the Act.
23. He depones that in line with these provisions, the 3 rd Respondent in 2018 decided to review the Credit Reference Bureau Regulations, 2013. In doing so, the 3 rd Respondent ensued to call for comments and views from the relevant stakeholders on the Draft Regulations. It is noted that the 3 rd Respondent received comments from commercial banks, microfinance banks, CRBs, Kenya Bankers Association, Association of Microfinance Institutions, CIS Kenya and the Interested Parties herein. Following this feedback, it is averred that the 3 rd Respondent formulated the Draft Credit Reference Bureau Regulations,2019.
24. He depones that soon thereafter, the Draft Regulations were subjected to public participation in May 2019, where members of the public and stakeholders were invited to give their comments on the same by 17 th June 2019. In like manner, the cited Stakeholders submitted their comments on the Draft Regulations.
25. He depones that the 3 rd Respondent considered each comment in July 2019 wherein it was either agreed with and incorporated or disagreed with and reasons provided. Following this, the Draft Regulations were revised and forwarded to the 2 nd Respondent for review and further action.
26. He avers that the 2 nd Respondent proceeded to revise the Draft Regulations and published the same vide Legal Notice No. 55 of 8 th April 2020 as the Credit Reference Bureau Regulations, 2020. He asserts that at the time of filing this suit, the Credit Reference Bureau Regulations, 2020 had been in operation for 19 months with no legal challenge being raised.
27. It is deponed that on 14 th April 2020, the 3 rd Respondent issued a Press Release informing the public about the CRB Regulations and the key reforms that had been introduced. Moreover, the measures that had been implemented to cushion borrowers from the difficulties of COVID 19. One of these measures was, the suspension of sharing of negative credit information with CRBs for a period of 6 months. This was done vide Gazette Notice No.3096.
28. Furthermore, he depones that the 2 nd Respondent in compliance with Section 11(1) of the Statutory Instruments Act transmitted the Credit Reference Bureau Regulations,2020 to the Clerk of the National Assembly for tabling before the House. The Regulations are said to have been approved by the House on 28 th October 2020.
29. For this reason, he contends that the Regulations complied with the legislative framework contemplated under Article 94 of the Constitution as read with the Central Bank of Kenya Act, the Microfinance Act,2006, the SACCO Societies Act,2008 and the Statutory Instruments Act, 2011. The 3 rd Respondent depones that thereafter, on 1 st October 2020, it issued another Press Release notifying the public that the suspension notice had expired.
30. It avers that with the recommendation of the 3 rd Respondent and in line with Regulation 18(7) of the Regulations, the 2 nd Respondent vide Legal Notice No. 225 of 5 th November 2021 suspended the sharing of negative credit information with CRBs to further cushion customers from the negative economic impacts of COVID 19.This was followed by the 3 rd Respondent’s Circular No.5 of 2021 dated 8 th November 2021 to commercial banks, mortgage finance companies, microfinance banks, SACCO societies and CRBs. This Directive was issued on the following basis:
a) The Kenya National Bureau of Statistics, the CBK and FSD Kenya ran the first wave of the Micro and Small Enterprise (MSE) COVID-19 Tracker Survey to better understand the impact of COVID-19 on micro businesses. The study found that 8% of businesses had benefitted from the suspension of the credit reporting to CRBs, accounting for the third most effective measure taken by the government during the survey period.
b) Various Financial Sector Regulators in Kenya, including the CBK, compiled the Kenya Financial Stability Report in September 2021. The report focused on the impact of the COVID-19 pandemic on non-performing loans in 2021. The report concluded that all factors considered, the bank's credit risk is expected to remain elevated in 2021 due to non-performing loans. This further highlighted the need to impose mitigation measures which include but not limited to suspension of negative credit reporting.
c) The CBK is required under Section 4 (2) and 4 (3) of the Central Bank of Kenya Act, Cap 491 of the Laws of Kenya to foster a stable market-based financial system and to support the economic policy of the Government. By recommending Legal Notice No. 225, the CBK was not only prompting a stable financial system but was also advancing the economic policies being advanced by the Head of Government.
31. In light of this, he contends that Legal Notice No.225 and the subsequent Circular No.5 of 2021 were premised on empirical, scientific and logical considerations not political considerations as alluded to by the Petitioners. Further to this, he asserts that while the Petitioners argued that MSMEs would be affected negatively by this Directive, they failed to establish the basis of the said allegations and issue the relevant evidence in support. Equally, that the Petitioners had failed to establish how the Directive infringes on Articles 10, 27, 46 and 47 of the Constitution.
32. He adds that the Petitioners failed to adduce evidence to show how businesses as they claim had been affected during the COVID period. Similarly, he avers that the Petitioners had failed to challenge the Regulations for over 19 months thus are guilty of inordinate delay.
33. He asserts that the impugned Regulation 18(7), was a by-product of the consultations that commenced in 2018 which involved engagement of the relevant Stakeholders and the public. That said, he argues that the Petitioners claim that the impugned Regulation is inconsistent with Section 31(3) and (4) of the Banking Act is unfounded. This is since the Section empowers the 2 nd Respondent to make Regulations and second, Section 31(b) relates to Deposit Protection Fund Board and Institutions regulated under the Kenya Deposit Insurance Act.
34. In sum, he contends that the Petition lacks merit as Legal Notice No.225 is constitutional, a position that the Petitioners have failed to rebut. For this reason, he urges that the Petitioners are not entitled to the relief sought.
1 st Interested Party’s Case
35. The 1 st Interested Party through its Ag. Chief Executive Officer, Joseph Nyaga filed a Replying Affidavit sworn on 28 th June 2022.He states that the 1 st Interested Party is a is a Credit Reference Bureau (CRB) duly licensed by the 3 rd Respondent to conduct credit reference bureau business pursuant to the provision of the Banking Act and the Banking (Credit Reference Bureau) Regulations. Predominantly, its role is to collect credit information, process it and disseminate it to financial institutions.
36. He informs that the 1 st Interested Party acquired its license on 16 th February 2010 and maintains a database through which banks, Microfinance Institutions and other lenders share amongst themselves, prescribed credit information relating to their customers only for use as permitted under Section 31 (3) (c) of the Banking Act and Regulation 27 of Banking (Credit Reference Bureau) Regulations, 2020.
37. He depones that at the time of its Registration, financial institutions were mandated to submit all non-performing loans to the Bureau and update the same on a monthly basis. He enlightens that by 2015, most of the financial institutions had begun submitting full file information which included both non-performing and performing loans, following amendments to the Banking Act and issuance of the Credit Reference Bureau Regulations 2013. He avers that this enabled the 1 st Interested Party and other CRBs to offer sound credit scores which have in turn have resulted in informed loan appraisals and by extension increased access to credit.
38. Reiterating the facts of the Petition and as well in support of the Petition, he states that the 1 st Interested Party following the President’s directive was not consulted as a stakeholder, to give any comment or participate in the same, prior to publication of Gazette Notice No. 225 of 2021 . He asserts that this was contrary to Article 10 of the Constitution, Section 5 of the Statutory Instruments Act as well as the President’s direction that the relevant stakeholders be first consulted.
39. In light of the President’s Directive and 3 rd Respondent’s Circular, he informs that as per the Data Specification Template (Version 4.1 released by 3 rd Respondent on 29 th January 2019), all credit information providers are obligated to effect monthly submissions of credit information data by every 10 th day of the month. In line with this, the data submissions made by the 10 th November 2021 and those due in the subsequent months were expected to be compliant with the directive.
40. Considering this, he notes that the impugned Legal Notice compels CRBs to exclude any negative credit information for loans of a customer less than Ksh. 5,000,000 submitted by credit information providers from 1 st October 2020 to 30 th September 2021.He reasons that this exclusion is temporary and thus will only run for the specified relief period, after which the excluded data ought to be reinstated.
41. He argues that this is problematic as the 1 st Interested Party and other CRBs maintain a database with millions of active profiles and so, given the huge volumes of data, implementation of the directive, requires redesigning of the entire IT system through various stages as outlined in the Affidavit. He notes that this will not take not less than three months and cost not less than Ksh.3,000,000/-.
42. Moreover, he asserts that the President’s directive’s effect of suppressing massive data will negatively affect the 1 st Interested Party’s business which will in turn threaten its sustainability with anticipated potential loss of employment.
43. Further to this, it is argued that the Directive is marred with ambiguity and dubiety in that cannot be implemented without further guidelines, as such lacks clarity. Chiefly, the Directive is faulted for capping negative listing of loans less than Kshs.5,000,000/- but does not specify whether the amount relates to the principal sum or the outstanding loan balance; it does not specify whether the relief applies to MSMEs borrowers, individuals or all credit customers within the Kshs.5,000,000/- cap and there is ambiguity as to the relief timelines .
44. The 1 st Interested Party further argues that the prior to enactment of Regulation 18 (7) of the Banking (Credit Reference Bureau) Regulations, 2020, this Regulation was not part of the draft Regulations that were circulated for public comments by the 3 rd Respondent. Consequently, it is contended that this Regulation was not submitted to public participation and further an opportunity for stakeholder to participate, in contravention of Section 5 of the Statutory Instruments Act.
3 rd Interested Party’s Case
45. The 3 rd Interested Party through its Chief Executive Officer, Kamau Kunyiha filed a Replying Affidavit sworn on 6 th July 2022.
46. He depones that the 3 rd Interested Party is a CRB duly licensed by the 3 rd Respondent pursuant to the provision of the Banking Act and the Banking (Credit Reference Bureau) Regulations. It acquired its license on 29 th April 2015 and similarly, maintains a database through which banks, Microfinance Institutions and other lenders share amongst themselves prescribed credit information relating to their customers only for use as permitted under Section 31 (3) (c) of the Banking Act and Regulation 27 of Banking (Credit Reference Bureau) Regulations, 2020.
47. This Party filed an identical Replying Affidavit as the 1 st Interested Party in support of the Petition, in relation to the substance of the Petition.
4 th Interested Party’s Case
48. The 4 th Interested Party through its Counsel, Hannah Ndarwa filed a Replying Affidavit sworn on 13 th June 2022. She states that the 4 th Interested Party is a non-profit Organization registered as a Society under the Societies Act.
49. She states that this Party’s objective is to facilitate the generation, collection, analysis, review, dissemination and use of accurate credit information and record for the benefit of all participants in the credit market. She notes that the essence of this role is informed by the historical background of the development of the Credit Information Sharing legal framework as detailed in the Affidavit.
50. This Party in like manner filed an identical reply as the 1 st Interested Party in support of the Petition, in relation to the substance of the Petition.
51. In addition to the underscored faults, the 4 th Interested Party argues that the impugned Directives are also in violation of the Petitioners’ economic rights as suspension of selected aspects of credit information from the credit information mechanism distorts the credibility of data and makes it unreliable in decision making, thereby denying consumers their consumer rights under Article 46 (b) of the Constitution to information necessary for them to gain full benefit from goods and services.
7 th Interested Party’s Case
52. The 7 th Interested Party through its Chief Executive Officer, Caroline Kabui Karanja filed its Replying Affidavit sworn on 13 th June 2022.
53. She informs that the 7 th Interested Party is a non-profit organization that was registered as a Society in 1999 under the Societies Act. She informs that the 7 th Interested Party primarily builds the capacity of the Kenyan Microfinance industry through, policy advocacy; capacity building; networking & linkages and Research & knowledge management.
54. She equally informs that whereas the original legal framework for credit information sharing in Kenya did not incorporate microfinance institutions, their participation thereafter was enabled by a number of amendments to the Banking and Microfinance Acts as well as the Regulations governing the sharing of prescribed credit information undertaken between 2009 and 2016. As such, its members have since taken part in the credit information sharing framework. For this reason, that they will be directly impacted by the outcome of the instant Petition.
55. This Party in like manner filed an identical response as the 1 st Interested Party in support of the Petition, in relation to the substance of the Petition.
56. In addition, to the highlighted challenges of the impugned Directives, she contends that financial institutions will refrain from lending to persons whose true credit history is unascertainable and ability to repay loans is uncertain.
57. Referring to a survey conducted by the 7 th Interested Party, she avers that loan disbursements during this period dropped by over 16% in one month. Further that the survey revealed that the success rate for credit applications during the period of data suppression dropped by 10% in the first month.
58. Moreover, she states that for almost all microfinance banks, lending is purely to the MSME
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1. The Petition dated 8 th November 2021 was amended on 2 nd March 2023 and is supported by the 1 st Petitioner’s affidavit in support of similar date and a further affidavit dated 10 th November 2024 . The Petition challenges Regulation 18(7) of the Banking (Credit Reference Bureaus) Regulations , 2020 for being inconsistent with Section 31 of the Banking Act and Articles 10, 27 and 46 of the Constitution.
2. On this premise the Petitioners seek the following reliefs against the Respondents:
a) A declaration that the amendment of the Banking (Credit Reference Bureaus) Regulations, 2020, by introducing Regulation 18(7) is inconsistent with Section 31 of the Banking Act Cap 488 Laws of Kenya and Articles 10, 27 and 46 of the Constitution, therefore, null and void.
b) A declaration that the amendment of the Banking (Credit Reference Bureaus) Regulations, 2020 by introduction of Regulation 18 (7) violated Article 10 of the Constitution thus unconstitutional for want of public participation.
c) An order lifting the suspension barring credit only Microfinance Institutions and digital lenders from participating in the Credit sharing mechanism to resume sharing credit information through CRBs unless specifically barred by the CBK upon exercise of fair administrative process.
d) An order be issued setting aside the Central Bank of Kenya’s directive vide Circular No 8 of 2020, dated 14 th April barring credit only Microfinance Institutions and digital lenders from participating in the Credit Information Sharing Mechanism through Credit Reference Bureaus.
e) Costs of this Amended Petition.
Petitioners’ Case
3. The Petitioners state that following the Corona virus pandemic announcement in the Country on 13 th March 2020, a consultative meeting of various stakeholders in Government and the private business sector including the Governor, 3 rd Respondent, Chief Executive Officers of Financial Institutions and business entities, mobile telephone service providers among other private entities, was held at Statehouse Nairobi on the 18 th March, 2020.
4. The Petitioners aver that the purpose of the meeting was to come up with emergency measures such as restructuring of loans, suspension of listing of credit information with the Credit Reference bureau and increased amount of mobile money transactions to keep the economy afloat during the partial lockdown and suspension of several business operations.
5. The Petitioners depone that these measures were actualized vide a Circular dated 27 th March 2020 addressed to all banking institutions and financing companies by the 3 rd Respondent. Particularly, the Circular issued guidelines for the implementation of the emergency measures on loan restructuring and compliance.
6. Furthermore, it is deponed that in April 2020, the 3 rd Respondent vide Circular No.8 of 2020 directed the 1 st , 2 nd and 3 rd Interested Parties not to receive any credit information, whether positive or negative from credit only microfinance institutions and digital lenders.
7. Soon thereafter vide a Gazette Notice No.3096 dated 8 th April 2020 and issued on 14 th April 2020, the 2 nd Respondent suspended sharing of negative credit information for the period with effect from 1 st April, 2020 to 30 th September, 2020.In particular, banks, mortgage finance Companies, microfinance banks and Sacco societies were barred from submitting to credit reference bureaus any negative credit information on a non performing loan of a customer whose loans were performing for the period prior to 1 st April, 2020, third party Credit information providers not to submit to any credit Reference Bureau any negative information on a customer which qualified as such from 1 st April,2020 and Credit Reference Bureaus shall not include in any credit report any negative credit information specified above . It is noted that this directive was anchored on Regulation 18 (7) of the Banking (Credit Reference Bureau) Regulations, 2020.
8. The Petitioners assert that as a result of the undertaken measures, several businesses were hit hard, being forced to scale down and some closing down completely, such as Micro, Small and Medium enterprises (MSMEs) who depended on the credit rating to access loans. Furthermore, it is averred that owing to the implication of the directive, commercial banks, mortgage finance companies, microfinance banks and other lenders halted lending for fear of default which further affected the already ailing business environment.
9. The Petitioners state that subsequently, the 4 th Respondent vide a Press Release on 1 st October 2020 announced the lapse of the six-month suspension period on listing of negative credit information of borrowers with the Credit Reference Bureaus. It is stated however that the directive barring the 1 st , 2 nd and 3 rd Interested Parties from receiving credit information from credit only microfinance institutions and digital lenders, was not lifted and persists to date.
10. It is claimed that the Banking (Credit Reference Bureau) Regulations, 2020 which conferred power to the 2 nd Respondent to suspend listing by Credit Bureaus, was amended and published on the same date as the suspension notice, vide Gazette Notice No 55 on 8 th April 2020.These Regulations are argued to have effectively repealed the Banking Act (Credit Reference Bureau) Regulations, 2013.
11. The Petitioners are aggrieved that the Respondents in amending Regulation 18 of the Banking (Credit Reference Bureau) Regulations, acted contrary and not in compliance with Article 10 of the Constitution. This is since the impugned Regulation was introduced without involvement of all the stakeholders which include the Micro, Small and medium Enterprises-MSMEs, and members of the Public. Furthermore, the impugned Regulation is claimed to be inconsistent with the primary legislation that is, the Banking Act under Section 31.
12. The Petitioners as well aver that on 20 th October 2021, the President during his speech, while acknowledging the MSME’s role in the economy, issued a directive suspending negative listing for non-performing loans capped at Ksh.5,000,000.00 for a period of one year ending in September, 2022.It is argued that the President’s directive also affected listings of borrowers with loans below Ksh.5,000,000, from October, 2020.They assert that this means that their rating would be inaccurate for a period of two years ending September, 2022.
13. The Petitioners state that in a bid to enforce the President’s Directive, the 2 nd Respondent, vide Legal Notice No 225 dated 5 th November, 2021, published a number of directives on suspension of exchange of certain aspects of negative credit information as follows:
a) Banks/mortgage finance companies, microfinance Banks and Sacco Societies shall not submit to any Credit Reference Bureau, any negative credit information on non-performing loan of a customer of an amount less than Kshs. 5,000,000.00 where the loans were performing on September 30 th , 2021 but became nor performing on 1 st October, 2021.
b) 3 rd Party Credit information providers shall not submit to any credit reference bureau any negative credit information of a customer on a loan of an amount less than Kshs. 5,000,000.00 which qualified as such from October, 1 st , 2021.
c) Credit Reference Bureaus shall not include any credit report, any negative credit information for loans of a customer less than Kshs 5,000,000.00 submitted to the Credit Reference Bureaus from 1 st October, 2020 to 30 th September, 2021, and any negative credit information specified in (a) and (b) above.
14. The Petitioners contend that Legal Notice No. 225 was issued pursuant to the provisions of Regulation 18(7) of the Banking (Credit Reference Bureau) Regulations, 2020 whose constitutionality is challenged in this Petition. It is stated that thereafter the 3 rd Respondent seeking to enforce the President’s Directive, proceeded to implement the Moratorium through its Circular No. 5 of 2021 dated 8 th November, 2021 alongside a Press Release of even date titled Suspension of the Listing of Negative Credit Information for Borrowers .
15. According to the Petitioners the President in issuing his Directive acted unilaterally and arbitrarily without prior consultation and in total disregard of the national values and principles of good governance. They equally argue that the President’s action not only usurps the 3 rd Respondent’s role but also discriminates against MSMEs access to credit, in violation of Article 27 of the Constitution on equality and freedom from discrimination which in turn violates their social and economic rights.
16. The Petitioners are concerned that if the President’s Directive is implemented, it will cause a complete business shut down for individual and small-scale business borrowers as well as the Credit Reference Bureaus who mainly depend on credit reference information data.
17. As such, the Petitioners bring this Petition against the Respondents to challenge the constitutionality of the Presidential Directive on the suppression of negative listing of Borrowers by Credit Reference Bureaus and the legality of Regulation 18 (7) of the Banking (Credit Reference Bureaus) Regulations, 2020 which was enacted without public participation prior to its amendment. Additionally, this Directive is argued not to be anchored in law thus an illegality.
18. Further to this, the Petitioners assert that the 3 rd Respondent’s Directive indiscriminately barring credit only microfinance institutions and digital lenders, contravenes Article 46 (b) of the Constitution and is an unfair administrative action as the lenders affected were not engaged or informed of their specific violations and given an opportunity to defend themselves before being barred.
19. The Petitioners further inform that while the instant Petition appears to be similar to one, HCCHRPET/E255/2021 , the issues and the cause of action in the two Petitions are distinct and distinguishable. They also state that Hon. Lady Justice M. Thande on 28 th August 2023 delivered a Judgment in HCCHRPET/E255/2021 .
1 st , 2 nd and 4 th Respondents’ Case
20. In reaction to the Petitioners’ case and Application, these Respondents filed Grounds of Opposition dated 25 th November 2021 on the basis that:
i. A grant of the conservatory orders sought at this stage would offend the presumption that every legally enacted statute is constitutional, noting that such a presumption can only be rebutted upon full hearing and determination of the Petition.
ii. The strict interpretation of Article 23(3)(c) is that a relief for conservatory Orders is prima facie, only available when a party is alleging that a right or fundamental freedom in the Bill of Rights has been denied, violated or infringed or is threatened. The mere allegation that the Petitioners fundamental rights have been contravened is not of itself sufficient to entitle the Petitioners the conservatory remedies sought. The Petitioners must demonstrate real danger so imminent and evident, true and actual and not fictitious; so as to deserve immediate redress by this Court.
iii. As such and based on the Notice of Motion application, the Petitioners, have not in any way demonstrated that the enactment of the Banking (Credit reference Bureau) Regulations, 2020 violated the Constitution and their rights.
iv. From a reading of the application and the Petition, it is evident that the issue of contention is whether there was public participation conducted before Respondents opted to enact the Banking (Credit Reference Bureau) regulations, 2020. This issue cannot be decided at this interlocutory stage as there is need for this Court to interrogate the principles of public participation which can only be aptly decided at the hearing of the main Petition.
v. There was inordinate delay in filling the Application challenging the Constitutionality of Banking (Credit Reference Bureau) Regulations, 2020.
vi. It is clear and as admitted under paragraph 25 and 26 of the Supporting Affidavit sworn by the 1 st Petitioner herein, the Presidential directive of 20 th October, 2021 and the Legal Notice No. 225 of issued on the 5 th November 2021 was pursuant to the provisions of Regulation 18(7) of the Banking (Credit Reference Bureau) Regulations, 2020 which were enacted in April 2020. Therefore, if at all there were any rights violated, by the directive and Gazette notice then those rights were violated way back in April 2020. The Petitioners have lived with the violations, for more than one year before moving the Court. It will do no more harm if they wait for the conclusion of the Petition, which will finally determine if indeed any rights have been violated as it was held in the case of Okiya Omtatah Okoiti v Kenya University Teaching, Referral & Research Hospital & 2 others; Kenyatta University Council & 2 others (interested parties) [2019] eKLR .
vii. The Petitioners have not demonstrated any prejudice or irreparable harm, damage or injury likely to be suffered if the conservatory orders sought are not granted. There is also no evidentiary proof that the grant of conservatory orders sought would enhance constitutional values and objects specific to the rights and freedom in the Bill of rights.
viii. The orders sought in the application are final in nature and this will require the Court to go into a conclusive or definite finding which is tantamount to pre-emptying the Petition. Moreover, this will go against the principles, purpose and intention of an application for conservatory orders.
ix. The Petitioners have not demonstrated that if conservatory reliefs sought are not granted, the petition will be rendered nugatory.
x. It is in the interest of the Public that this Application be dismissed.
3 rd Respondent’s Case
21. The 3 rd Respondent filed its Replying affidavit sworn on 18 th November 2021 by its General Counsel, Kennedy Kaunda Abuga.
22. To commence with, it avers that Section 31(3)(b) and (c) and (4) of the Banking Act empowers the 2 nd Respondent to promulgate Regulations on the establishment and operation of CRBs for the purpose of collecting credit information on clients of institutions licensed under the Act, the Microfinance Act and the SACCO Societies Act and for the sharing of such credit information. Equally, the 3 rd Respondent under Section 57 of the Central Bank of Kenya Act is empowered to prescribe Regulations, issue Guidelines, Circulars and directives to institutions including CRBs for the purpose of giving effect to provisions of the Act.
23. He depones that in line with these provisions, the 3 rd Respondent in 2018 decided to review the Credit Reference Bureau Regulations, 2013. In doing so, the 3 rd Respondent ensued to call for comments and views from the relevant stakeholders on the Draft Regulations. It is noted that the 3 rd Respondent received comments from commercial banks, microfinance banks, CRBs, Kenya Bankers Association, Association of Microfinance Institutions, CIS Kenya and the Interested Parties herein. Following this feedback, it is averred that the 3 rd Respondent formulated the Draft Credit Reference Bureau Regulations,2019.
24. He depones that soon thereafter, the Draft Regulations were subjected to public participation in May 2019, where members of the public and stakeholders were invited to give their comments on the same by 17 th June 2019. In like manner, the cited Stakeholders submitted their comments on the Draft Regulations.
25. He depones that the 3 rd Respondent considered each comment in July 2019 wherein it was either agreed with and incorporated or disagreed with and reasons provided. Following this, the Draft Regulations were revised and forwarded to the 2 nd Respondent for review and further action.
26. He avers that the 2 nd Respondent proceeded to revise the Draft Regulations and published the same vide Legal Notice No. 55 of 8 th April 2020 as the Credit Reference Bureau Regulations, 2020. He asserts that at the time of filing this suit, the Credit Reference Bureau Regulations, 2020 had been in operation for 19 months with no legal challenge being raised.
27. It is deponed that on 14 th April 2020, the 3 rd Respondent issued a Press Release informing the public about the CRB Regulations and the key reforms that had been introduced. Moreover, the measures that had been implemented to cushion borrowers from the difficulties of COVID 19. One of these measures was, the suspension of sharing of negative credit information with CRBs for a period of 6 months. This was done vide Gazette Notice No.3096.
28. Furthermore, he depones that the 2 nd Respondent in compliance with Section 11(1) of the Statutory Instruments Act transmitted the Credit Reference Bureau Regulations,2020 to the Clerk of the National Assembly for tabling before the House. The Regulations are said to have been approved by the House on 28 th October 2020.
29. For this reason, he contends that the Regulations complied with the legislative framework contemplated under Article 94 of the Constitution as read with the Central Bank of Kenya Act, the Microfinance Act,2006, the SACCO Societies Act,2008 and the Statutory Instruments Act, 2011. The 3 rd Respondent depones that thereafter, on 1 st October 2020, it issued another Press Release notifying the public that the suspension notice had expired.
30. It avers that with the recommendation of the 3 rd Respondent and in line with Regulation 18(7) of the Regulations, the 2 nd Respondent vide Legal Notice No. 225 of 5 th November 2021 suspended the sharing of negative credit information with CRBs to further cushion customers from the negative economic impacts of COVID 19.This was followed by the 3 rd Respondent’s Circular No.5 of 2021 dated 8 th November 2021 to commercial banks, mortgage finance companies, microfinance banks, SACCO societies and CRBs. This Directive was issued on the following basis:
a) The Kenya National Bureau of Statistics, the CBK and FSD Kenya ran the first wave of the Micro and Small Enterprise (MSE) COVID-19 Tracker Survey to better understand the impact of COVID-19 on micro businesses. The study found that 8% of businesses had benefitted from the suspension of the credit reporting to CRBs, accounting for the third most effective measure taken by the government during the survey period.
b) Various Financial Sector Regulators in Kenya, including the CBK, compiled the Kenya Financial Stability Report in September 2021. The report focused on the impact of the COVID-19 pandemic on non-performing loans in 2021. The report concluded that all factors considered, the bank's credit risk is expected to remain elevated in 2021 due to non-performing loans. This further highlighted the need to impose mitigation measures which include but not limited to suspension of negative credit reporting.
c) The CBK is required under Section 4 (2) and 4 (3) of the Central Bank of Kenya Act, Cap 491 of the Laws of Kenya to foster a stable market-based financial system and to support the economic policy of the Government. By recommending Legal Notice No. 225, the CBK was not only prompting a stable financial system but was also advancing the economic policies being advanced by the Head of Government.
31. In light of this, he contends that Legal Notice No.225 and the subsequent Circular No.5 of 2021 were premised on empirical, scientific and logical considerations not political considerations as alluded to by the Petitioners. Further to this, he asserts that while the Petitioners argued that MSMEs would be affected negatively by this Directive, they failed to establish the basis of the said allegations and issue the relevant evidence in support. Equally, that the Petitioners had failed to establish how the Directive infringes on Articles 10, 27, 46 and 47 of the Constitution.
32. He adds that the Petitioners failed to adduce evidence to show how businesses as they claim had been affected during the COVID period. Similarly, he avers that the Petitioners had failed to challenge the Regulations for over 19 months thus are guilty of inordinate delay.
33. He asserts that the impugned Regulation 18(7), was a by-product of the consultations that commenced in 2018 which involved engagement of the relevant Stakeholders and the public. That said, he argues that the Petitioners claim that the impugned Regulation is inconsistent with Section 31(3) and (4) of the Banking Act is unfounded. This is since the Section empowers the 2 nd Respondent to make Regulations and second, Section 31(b) relates to Deposit Protection Fund Board and Institutions regulated under the Kenya Deposit Insurance Act.
34. In sum, he contends that the Petition lacks merit as Legal Notice No.225 is constitutional, a position that the Petitioners have failed to rebut. For this reason, he urges that the Petitioners are not entitled to the relief sought.
1 st Interested Party’s Case
35. The 1 st Interested Party through its Ag. Chief Executive Officer, Joseph Nyaga filed a Replying Affidavit sworn on 28 th June 2022.He states that the 1 st Interested Party is a is a Credit Reference Bureau (CRB) duly licensed by the 3 rd Respondent to conduct credit reference bureau business pursuant to the provision of the Banking Act and the Banking (Credit Reference Bureau) Regulations. Predominantly, its role is to collect credit information, process it and disseminate it to financial institutions.
36. He informs that the 1 st Interested Party acquired its license on 16 th February 2010 and maintains a database through which banks, Microfinance Institutions and other lenders share amongst themselves, prescribed credit information relating to their customers only for use as permitted under Section 31 (3) (c) of the Banking Act and Regulation 27 of Banking (Credit Reference Bureau) Regulations, 2020.
37. He depones that at the time of its Registration, financial institutions were mandated to submit all non-performing loans to the Bureau and update the same on a monthly basis. He enlightens that by 2015, most of the financial institutions had begun submitting full file information which included both non-performing and performing loans, following amendments to the Banking Act and issuance of the Credit Reference Bureau Regulations 2013. He avers that this enabled the 1 st Interested Party and other CRBs to offer sound credit scores which have in turn have resulted in informed loan appraisals and by extension increased access to credit.
38. Reiterating the facts of the Petition and as well in support of the Petition, he states that the 1 st Interested Party following the President’s directive was not consulted as a stakeholder, to give any comment or participate in the same, prior to publication of Gazette Notice No. 225 of 2021 . He asserts that this was contrary to Article 10 of the Constitution, Section 5 of the Statutory Instruments Act as well as the President’s direction that the relevant stakeholders be first consulted.
39. In light of the President’s Directive and 3 rd Respondent’s Circular, he informs that as per the Data Specification Template (Version 4.1 released by 3 rd Respondent on 29 th January 2019), all credit information providers are obligated to effect monthly submissions of credit information data by every 10 th day of the month. In line with this, the data submissions made by the 10 th November 2021 and those due in the subsequent months were expected to be compliant with the directive.
40. Considering this, he notes that the impugned Legal Notice compels CRBs to exclude any negative credit information for loans of a customer less than Ksh. 5,000,000 submitted by credit information providers from 1 st October 2020 to 30 th September 2021.He reasons that this exclusion is temporary and thus will only run for the specified relief period, after which the excluded data ought to be reinstated.
41. He argues that this is problematic as the 1 st Interested Party and other CRBs maintain a database with millions of active profiles and so, given the huge volumes of data, implementation of the directive, requires redesigning of the entire IT system through various stages as outlined in the Affidavit. He notes that this will not take not less than three months and cost not less than Ksh.3,000,000/-.
42. Moreover, he asserts that the President’s directive’s effect of suppressing massive data will negatively affect the 1 st Interested Party’s business which will in turn threaten its sustainability with anticipated potential loss of employment.
43. Further to this, it is argued that the Directive is marred with ambiguity and dubiety in that cannot be implemented without further guidelines, as such lacks clarity. Chiefly, the Directive is faulted for capping negative listing of loans less than Kshs.5,000,000/- but does not specify whether the amount relates to the principal sum or the outstanding loan balance; it does not specify whether the relief applies to MSMEs borrowers, individuals or all credit customers within the Kshs.5,000,000/- cap and there is ambiguity as to the relief timelines .
44. The 1 st Interested Party further argues that the prior to enactment of Regulation 18 (7) of the Banking (Credit Reference Bureau) Regulations, 2020, this Regulation was not part of the draft Regulations that were circulated for public comments by the 3 rd Respondent. Consequently, it is contended that this Regulation was not submitted to public participation and further an opportunity for stakeholder to participate, in contravention of Section 5 of the Statutory Instruments Act.
3 rd Interested Party’s Case
45. The 3 rd Interested Party through its Chief Executive Officer, Kamau Kunyiha filed a Replying Affidavit sworn on 6 th July 2022.
46. He depones that the 3 rd Interested Party is a CRB duly licensed by the 3 rd Respondent pursuant to the provision of the Banking Act and the Banking (Credit Reference Bureau) Regulations. It acquired its license on 29 th April 2015 and similarly, maintains a database through which banks, Microfinance Institutions and other lenders share amongst themselves prescribed credit information relating to their customers only for use as permitted under Section 31 (3) (c) of the Banking Act and Regulation 27 of Banking (Credit Reference Bureau) Regulations, 2020.
47. This Party filed an identical Replying Affidavit as the 1 st Interested Party in support of the Petition, in relation to the substance of the Petition.
4 th Interested Party’s Case
48. The 4 th Interested Party through its Counsel, Hannah Ndarwa filed a Replying Affidavit sworn on 13 th June 2022. She states that the 4 th Interested Party is a non-profit Organization registered as a Society under the Societies Act.
49. She states that this Party’s objective is to facilitate the generation, collection, analysis, review, dissemination and use of accurate credit information and record for the benefit of all participants in the credit market. She notes that the essence of this role is informed by the historical background of the development of the Credit Information Sharing legal framework as detailed in the Affidavit.
50. This Party in like manner filed an identical reply as the 1 st Interested Party in support of the Petition, in relation to the substance of the Petition.
51. In addition to the underscored faults, the 4 th Interested Party argues that the impugned Directives are also in violation of the Petitioners’ economic rights as suspension of selected aspects of credit information from the credit information mechanism distorts the credibility of data and makes it unreliable in decision making, thereby denying consumers their consumer rights under Article 46 (b) of the Constitution to information necessary for them to gain full benefit from goods and services.
7 th Interested Party’s Case
52. The 7 th Interested Party through its Chief Executive Officer, Caroline Kabui Karanja filed its Replying Affidavit sworn on 13 th June 2022.
53. She informs that the 7 th Interested Party is a non-profit organization that was registered as a Society in 1999 under the Societies Act. She informs that the 7 th Interested Party primarily builds the capacity of the Kenyan Microfinance industry through, policy advocacy; capacity building; networking & linkages and Research & knowledge management.
54. She equally informs that whereas the original legal framework for credit information sharing in Kenya did not incorporate microfinance institutions, their participation thereafter was enabled by a number of amendments to the Banking and Microfinance Acts as well as the Regulations governing the sharing of prescribed credit information undertaken between 2009 and 2016. As such, its members have since taken part in the credit information sharing framework. For this reason, that they will be directly impacted by the outcome of the instant Petition.
55. This Party in like manner filed an identical response as the 1 st Interested Party in support of the Petition, in relation to the substance of the Petition.
56. In addition, to the highlighted challenges of the impugned Directives, she contends that financial institutions will refrain from lending to persons whose true credit history is unascertainable and ability to repay loans is uncertain.
57. Referring to a survey conducted by the 7 th Interested Party, she avers that loan disbursements during this period dropped by over 16% in one month. Further that the survey revealed that the success rate for credit applications during the period of data suppression dropped by 10% in the first month.
58. Moreover, she states that for almost all microfinance banks, lending is purely to the MSME
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