Credit access behind push for bureau

The main objective of adoption of credit information sharing in Kenya is to increase access to credit.

The benefits of credit access and cost effectiveness of that credit to development at the firm level and at the household level is key.

Credit information sharing will facilitate the development of information capital.

The risk premium associated with information asymmetry will henceforth be eroded. This will allow cost of credit to decline substantially.

Information capital will change the current collateral technology.

Credit by the banking sector in Kenya has to a large extent been underwritten by physical collateral such as land and buildings and costs of evaluating that collateral – with inappropriate definition of property rights.

Borrowers without access to such collateral have been constrained from accessing credit.

Information sharing

Credit information sharing will thus enable borrowers to build a track record that they can use to access credit.

This will especially be pertinent to those borrowers in the informal and Small and Medium Enterprises (SMEs) who have a track record and good performance to use their reputational capital to access credit.

The third benefit is to enhance information symmetry and support financial development.

The existing state of information asymmetry between borrowers and banks is a constraint to innovation and financial sector development.

Two important outcomes in information asymmetry are the moral hazard problems from the borrowers and adverse selection from the banks.

These two problems punish the economy with low provision of credit.

Fourth, in a segmented market like Kenya’s, some segments remain untapped because banks do not have adequate information to price suitable products.