Locking out bad debtors promises cheaper credit

Bankers have promised Kenyan borrowers to expect a reduction in the cost of loans following the launch of a new tool that is expected to weed out serial defaulters and shut them from unsuspecting lenders.

The handover of a credit referencing bureau licence to Credit Reference Bureau Africa (CRBAfrica) on Thursday marked what the Central Bank governor, Prof Njuguna Ndung’u, termed “the first and most important step” in building a database on Kenyan’s debt repayment records.

It is expected that with this record readily available to banks and other lenders, the risk premium and information search costs that are loaded onto loans as interest charges will reduce significantly, with the resultant saving being passed on to customers in the form of lower borrowing charges.

“The bureaus will make a big difference. The bad loans portfolio will reduce and this will in turn lower interest rates on loans,” said the NIC Bank managing director James Macharia.

Fraudulent borrowers have perfected a scheme of shuffling between unsuspecting banks and taking out loans with no intention of repaying.

Lending rates

And even though CBK has maintained a loose monetary policy stance and repeatedly goaded banks to heed calls to reduce lending rates to boost economic growth by easing access to credit, the lenders have cited the risk of default as a disincentive for rate cuts.

But with CRBAfrica (and at least two other institutions that are going through the licence application process) now allowed to tap all loan repayment information from banks and store it in a centralised server that all the lenders can access, the cheats’ days could be numbered.

The bureaus already have multiple agreements with utility service providers to also store names of individuals who skip their electricity, water and telephone bills as well as repayments of their Sacco and higher education loans; making them a one-stop appraisal shop for lenders.

“Those with positive credit rating may start reaping the benefits of lower borrowing charges immediately,” said the KCB Bank managing director Martin Oduor-Otieno.

SMEs and individuals who have stellar repayment records stand to benefit most as they will no longer be penalised for not having audited accounts and collateral.