, NAIROBI, Kenya, Apr 29 – Banks will in the next two months be able to openly share their clients’ credit information to determine a borrower’s creditworthiness.
Project Manager of the Kenya Credit Information Sharing Initiative Jared Getenga said on Thursday that they had been conducting data transmission trials since the Credit Reference Bureau Regulations 2008 came into effect in February last year and that they were ready to implement the project from July.
“We have legal powers to do what we are doing now. We have done two test runs and we are preparing to roll out this mechanism by July. Going forward, the Central Bank of Kenya and the Kenya Bankers Association are putting together all our resources to make sure that this system provides accurate reports,” he said.
Upon its operationalisation, the project will make it easier for good borrowers to access credit at affordable rates and lead to the reduction of non-performing loans.
The need for a credit information framework was necessitated by the loss of depositors’ money following the collapse of many banks in the 1990s due to mismanagement and poor lending practices.
This in turn meant that low risk borrowers were disadvantaged as they were charged high interest rates and had to grapple with stringent collateral requirements as banks sought to cushion themselves against the risk of high bad loans.
In August last year, the Central Bank of Kenya (CBK) licensed a firm that will collect credit data and provide it to banks under the Central Bank’s supervision.
Using such information, banks will then price loans based on a borrower’s risk profile thus easily isolating serial loan defaulters. It will also reverse the trend where credit in the sector has been underwritten by physical collateral such as land.
Mr Getenga said they will soon establish a new body which will ensure that the credit reports contain information from other lending institutions.
“We would like to introduce a comprehensive data flow that means that we would like to move outside the banking sector. Therefore, we are soon setting up a Kenya Credit Providers Association which will bring together other lenders together so that they expand this mechanism beyond the sector,” he emphasised.
Financial institutions, the Central Bank of Kenya and the Kenya Bankers Association, he said, are set to carry out a sensitisation workshop to educate borrowers on how the mechanism works and how the regulations will impact them.