Credit bureaus herald era of financial discipline

A survey conducted seven years ago by the International Finance Corporation (IFC) on the importance of a viable credit information infrastructure found out that one main challenge facing the banking fraternity was not only growing competition for the underserved such as retail and small businesses, but also lack of strategies and skills to tackle impediments associated with this market.

IFC said credit bureaus had a pivotal role to merge the two challenges and as a driving force for borrowing, while mitigating non-performing loans which had dogged the local financial industry for years.

Last week, the Central Bank of Kenya moved to license the first credit bureau, the Credit Reference Bureau (CRB), a hallmark achievement which CBK says will have a positive impact on the economy.

Plans are now under way to license two more players, Metropol Credit Reference Bureau and Compuscan Limited.

CRB is a local company with a footprint in 12 African countries and it is authorised to share credit information with and among the banks.

Business Daily spoke to CRB’s chief executive officer Wachira Ndege on the significance of credit bureaus.

What is the immediate impact we can expect with the licensing of CRB?

A culture of financial discipline will be instilled since consumers know that they will be monitored. A debt will always be reflected on the account. That level of consciousness is very important to credit worthiness.

The primary idea is to make it possible for people’s payment behaviour to be retained independently and impartially.

A good borrower should be able to demonstrate to a bank that they have a good credit risk and, therefore, obtain either easy terms of credit and the pricing should be lower as compared to someone with a higher credit risk.

In this market, the only clients that are able to get a good base rate are the blue chip companies because the banks consider them excellent risk.

Does the bureau negate the use of collateral to access credit?

Collateral does not guarantee payment. It should only be insurance, in the event one is unable to pay. It should never be the basis on credit lending. The only guarantee is the payment behaviour of the borrower

Women have traditionally been denied credit due to lack of collateral, since only two per cent own land. What does this mean for them?

Women will absolutely benefit since it has been established they are better credit risk. Men are more reckless and know not to honour their financial obligations.