NAIROBI, Kenya, Aug 27 – Central Bank of Kenya (CBK) has licensed a firm that will collect credit information on bank customers and which will be used to determine their creditworthiness.
Governor Prof Njuguna Ndung’u said on Thursday that after conducting due diligence, they had given the go- ahead to Credit Reference Bureau Africa which will provide its services to banks under the Central Bank’s supervision.
“We have issued a letter of intent to the first applicant, Credit Reference Bureau Africa which will commence operations on completion of an independent third party system and security audit and an onsite inspection by CBK,” the Governor said.
He disclosed that the bureau was picked from three applications (for the CRB licenses) that they had received from two local investors and a South African based player.
“The Central Bank wishes to reassure Kenyans that it shall rigorously assess all applications to ensure the integrity of the envisaged credit information sharing mechanism,” he pledged.
Under the law, information held by the bureau will be treated as CBK’s property and any firm that discloses this data to unintended parties or provides CBK with inadequate or incomplete data is liable to a heavy penalty.
This development follows the operationalisation of the credit reference bureau regulations early this year that will ultimately require banks to share their clients’ credit data.
Kenya Bankers Association has already hired a Project Manager – Jared Getenga – to drive the implementation of this project which upon completion is expected to transform the lending environment.
Banks are expected to use this information to price loans based on a borrower’s risk profile thus easily isolating serial loan defaulters.
On the other hand, borrowers particularly those in the Small and Medium Enterprise Sector will find it easier to access credit as the information will act as ‘personal collateral’ when applying for loans.
This will reverse the trend where credit in the sector has been underwritten by physical collateral such as land.
“The loan market in Kenya needs to overcome the tendencies where very low risk borrowers are subjected to unnecessarily high price which price them out of the market,” Mr Getenga said.
“The other tendency is for high risk borrowers to be unduly subsided. We seek to set up a mechanism where borrowers use reputation as collateral with which they can negotiate better terms,” he added.
He envisioned that it would take them until early 2011 to have banks freely exchanging this information which will eventually deepen the financial market.
Once this initiative is up and running the CBK hopes to rope in other financial and non financial credit providers such as Saccos and the Higher Education Loans Board.