NAIROBI, August 26 – New Credit Reference Bureau regulations introduced by the government could ease access to finance for small and medium enterprises in the country.
International Finance Corporation (IFC) Director for Eastern and Southern Africa, Jean Philippe Prosper welcomed the recently-gazetted rules, saying credit bureau operations are vital in building the confidence of the banking sector, and facilitating access to finance for small businesses.
He said: “The new regulations will provide a framework for a regulated and reliable system of credit information sharing, which should give the banks more confidence to lend to smaller businesses.”
The Minister for Finance formally gazetted the Credit Reference Bureau (CRB) regulations on July 11.
The set of laws, which come into effect in 2009, provide for the licensing and establishment of credit bureau operations in the country. They will also make it mandatory for financial institutions to report non-performing loans, and provide for the protection of consumers by defining their rights.
“These regulations strengthen earlier amendments to the Banking Act by making it mandatory for banks to share information, and allowing private credit bureau operators to formally apply for a license to provide their services to the banking sector,” East Africa Credit Bureau Association Chairman, Wachira Ndege said.
Central Bank Director for Banking Supervision Rose Detho noted: “With the gazettement of the regulations, the Central Bank of Kenya will now begin to receive applications from viable credit bureaus. CBK will issue licenses and supervise the credit bureaus.”
“The new regulations will guide the system of credit information sharing, and help identify and isolate serial loan defaulters, who account for the huge stock of non performing loans. With time, this will enable banks to lower the price of credit facilities for borrowers that show a good credit profile.”
An official from the Ministry of Finance, Jared Getenga said that the introduction of formal credit information sharing would improve the lending environment, and help deepen the financial sector. “The Ministry of Finance will work with the Central Bank of Kenya, and IFC to share International Best Practices, in order to ensure that we support the successful operation of credit bureaus under the new regulations,” Getenga said.
IFC, through its Africa Credit Bureau Program, was part of other stakeholders involved in the process of developing the new regulations, and shared best practices on credit referencing and regulations.
According to a number of researches conducted by the IFC, results have shown that credit bureaus are critical to the expansion of credit. The availability and use of credit bureau reports in credit decisions increases the quality of such decisions and provide significant risk mitigation by also minimising fraud.
Furthermore, credit bureaus are a crucial building block that allow for greater access to finance for both individuals and small businesses, as credit information is necessary when applying modern financial technologies to credit decisions for these market segments.