Lenders to begin sharing clients’ history with CRBs

Commercial banks and mortgage firms in Kenya are set to start sharing information on their clients’ credit history at the end of the month, in what could significantly reduce the cost of borrowing.

Beginning July 31, it will be mandatory for commercial banks and mortgage lenders to share information on all non-performing loans in their books with licensed credit reference bureaus.

Central Bank Governor Prof Njuguna Ndungu announced on Tuesday that the financial institutions will be required to submit their information by the tenth day of each month thereafter.

Though the system will punish borrowers with dubious credit records, it is also expected to help good customers negotiate better credit terms.

Commercial banks should also use the information pool to make informed lending decisions and cut back defaults.

“Whereas the CRB regulations mandate the sharing of information on non-performing loans, they also provide for positive information sharing,” said Prof Ndungu.

Credit referencing is a powerful debt recovery tool that should help determine a defaulter’s ability to obtain or service credit elsewhere in the market.

This marks the full implementation of the Banking (Credit Reference Bureaus) Regulations 2008 introduced early this year and the licensing of two Credit Reference Bureaus (CRB’s), CRB Africa and Metropol.

Other benefits of information sharing will include reduced interest rates for borrowers and higher rates on savings.

“It had taken over 10 years to develop a credit referencing system in Kenya, which will not only help in locking out serial loan defaulters who take advantage of the information asymmetry that exist in the country, but also enable good ones to access loans at lower interest rates, ” said Mr Richard Etemesi, the Chairman of the Kenya Bankers Association.

Under the new arrangement, credit information on notorious defaulters under the Deposit Protection Fund will also find its way to credit reference bureaus, which means that information on individuals flagged under the DPF will be shared among commercial banks to help lower the volume of non-performing loans.

However, this information will only be available to persons authorized by the Central Bank and any bank found sharing it with a third party will face disciplinary actions.

KBA is expected to rollout a nationwide awareness campaign on the operations of CRBs, with borrowers expected to benefit from CRB initiatives by mid August this year.

Previously, each bank has been conducting its own credit-scoring for each prospective borrower, a service they will now get from credit reference bureaus, and reduce both their cost of processing a loan application and the turn around time it takes.