Money Markets

Good borrowers to gain from positive information sharing

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   CBK Governor Njuguna Ndung’u (left) with Mr Richard Etemesi, the Kenya Bankers Association chairman, at a news conference in July 2010 when Prof Ndung’u announced plans to roll out information sharing in the banking sector. FILE

CBK Governor Njuguna Ndung’u (left) with Mr Richard Etemesi, the Kenya Bankers Association chairman, at a news conference in July 2010 when Prof Ndung’u announced plans to roll out information sharing in the banking sector. FILE 

By George Ngigi

Posted  Sunday, April 7   2013 at  20:33

In Summary

  • Sharing of positive customer history among banks to give good debtors latitude to bargain for easier loans at low interest rates.
  • Two licensed bureaus in the country, Metropol and American-owned TransUnion, have started piloting positive information sharing.
  • Up to now, the bureaus have been largely used as debt collection tools by the lenders.
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Borrowers who faithfully service loans will in less than three months benefit from positive sharing of information among banks, ending the exclusive use of credit bureaus as scarecrows for bad debtors.

The Business Daily has established that the two licensed bureaus in the country, Metropol and American-owned TransUnion, have started piloting positive information sharing, whose success will see good debtors lower their borrowing and collateral costs starting June.

Up to now, the bureaus have been largely used as debt collection tools by the lenders.

The 43 banks have been sharing only details of loan defaulters, preventing the credit referencing from achieving its full potential of expanding credit access and reducing costs.

A key objective of credit referencing at its introduction four years ago was to reward faithful borrowers with access to credit without collateral requirements and at lower rates as they are deemed less risky.

“Banks are using CRB as a debt collecting tool, that is why it is not affecting pricing or expanding lending. With positive information we will generate credit scores and that profile becomes a bargaining power; it allows the borrower to engage the lender,” said Sam Omukoko the CEO of Metropol Credit Reference Bureau.

Loan defaults in the country are currently at 4.5 per cent, or Sh61.6 billion, indicating that the bulk of information on borrowers other than defaulters has not been shared four years after the introduction of the system.

Credit reference bureaus have been upgrading their system to increase their capacity. Banks have also been upgrading to ensure that they are able to extract information to be submitted to the bureaus.

“We will move away from the negative connotation that it is a blacklist and the consumer can see that they can use it for their benefit,” said Habil Olaka, the CEO of Kenya Bankers Association.

As at September last year the number of credit reports requested by institutions stood at 2,036,634 while those by individuals stood at 13,510. The gap underlines the variance in importance attached to the reports by banks and customers. Lending institutions have made the reports an integral part of their customer appraisal process with each customer being vetted.

Other institutions, including political parties, have also demanded the reports before engaging with individuals, which accounts for the bulk of the individual requests.

Pricing by banks is currently product-based. It, however, remains to be seen how the banks will implement the individual-based pricing.

The credit score ranges between 100 and 900 with a score of between 100 and 400 indicating that the individual has defaulted in a payment in their past. A score of 401 to 600 indicates one has not defaulted but their level of debt to income is considered high, and is considered fair.

A score of 700 to 800 is considered good while above 800 is excellent, and indicates prompt payments and long credit history. A person who has no credit record is not awarded a credit score.

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