Sh45 cents debt could lock out loan applicants thanks to data sharing

November 28, 2016
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Sharing of credit information between lenders has made it easier for financial institutions to make faster and more accurate loan disbursement decisions. /FILE
Sharing of credit information between lenders has made it easier for financial institutions to make faster and more accurate loan disbursement decisions. /FILE

, NAIROBI, Kenya, 28 Nov – A Sh45 cent forgotten or overlooked credit entry on your bank statement can lead to a negative credit rating. 

This is what happened to one customer who found out the hard way and had to go through a lengthy and stressful loan application process due to a 45 cents balance that had not been cleared for over three months.

And according to the law, the 45 cents default record will be accessible to other financial services providers for seven years through the Credit Reference Bureaus (CRB).

The sharing of credit information between lenders has made it easier for financial institutions to make faster and more accurate loan disbursement decisions.

CRBs are furnished with demographic information, payments and defaults and a summary of creditworthiness called a credit score, which replaced blacklisting in 2013 after CRB regulations were amended.

According to the Credit Information Sharing Association of Kenya (CIS Kenya), lenders have shared information of 6 million accounts with the three licensed Credit Reference Bureaus.

About 300,000 of these accounts have a negative rating, or what is known as non-performing accounts. Some CRBs use Payment Performance Index (PPI), which range between 200 – 900, with the lower values indicating riskier customers.

These are customers who have either defaulted on loans or have delayed making the regular payments at some point.

All Banks and microfinance institutions are, by law, required to share customer information with CRBs which are regulated by the Central Bank under the Credit Reference Bureau Regulations 2013.

In additional to commercial banks, over 500 other organizations including SACCOs, deposit finance institutions, credit card companies, leasing companies, the Higher Education Loans Board (HELB) and mobile based lenders are now sharing credit information with CRBs.

While utility companies, like Kenya Power and Water Companies, can share customer information, they are yet to adapt the credit reference system.

Perhaps the biggest beneficiaries of the credit reference system are lenders using mobile platforms to disburse loans.

Innovative micro-financing companies like MKopa, Tala, PesaZetu, Mshwari, Eazzy Loans, KCB Mpesa and Branch are providing financial services via mobile. Credit history of a customer has become the determining factor on whether or not to issue a loan.

But it’s not just the mobile-only channels that are reaping the full benefits of CRB services.

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