President William Ruto revealed in September that he had reached a deal with the banking industry that would see over four million Kenyans blacklisted for loan defaults removed by November 1 as part of reforms in the country’s credit market.
The NCBA Group CEO, who is also the current Chairperson of the Kenya Bankers Association (KBA), John Gachora, sat down with the Business Daily to provide insights into the new credit score method being adopted by the banking industry and how the sector is designing a credit repair programme for customers listed through popular digital mobile loan platforms.
What is your take on President William Ruto's push for your industry to end the blacklisting of borrowers by credit reference bureaus (CRBs)?
It is in support of what we have been doing with the Central Bank of Kenya (CBK) to take all the credit information that is available, primarily the CRB, and use that to score borrowers. Once you get scored, it means that then you have access to a certain amount of credit. It is supposed to be used as a determination to learn the volume or the amount of loan you can give somebody and that is why we are talking about negative credit listing should not be blacklisting.
It should be a way to use that information to determine what level of lending we do to that customer and what charges we can levy to that customer depending on how bad or good their credit rating is. What the President was talking about really supports risk-based lending.
In your position as KBA chairman, when should we expect to see all banks adopt that?
We are having some conversations with the CBK about how we check these 4.5 million Kenyans who are negatively listed, and how we get to a point where everybody has to adjust their mindset on blacklisting. We want to rebuild their credit score and remove this notion of blacklisting. It’s early days; we are having that conversation. We are designing a credit repair programme for these customers that have been listed through digital offerings.
Former President Uhuru Kenyatta had directed the suspension of CRB listing for loans less than Sh5 million last year until September this year, has that resumed?
That came to an end in September. I presume we will go back to the CRB regime. However, the current President seems to be very set on how we use the CRB information and it is what he wants to have reformed. We promised to start working on that ourselves as well.
The President also wants the CBK to relax the rules for reporting transactions beyond Sh1 million. Are we looking at a different threshold?
It is a logical and important ask. The [new] President just like the previous President has been very clear. Both have been clear that Kenya adheres to the Proceeds of Crime and Anti-Money Laundering Act (POCAMLA) and global anti-money laundering (AML) stands whose threshold is $10,000. I don’t think we are off the global AML stipulation in terms of thresholds, and I don't see the threshold movements.
What I think has happened, for a various number of reasons, is banks became the police and people felt very inconvenienced and their privacy being encroached on. I think that is the discussion; how do you implement this in a very humane, simple and dignified manner? That is what he is asking. The question we are asking ourselves is what we need to change and how we implement it so we comply with AML requirements and at the same time our customers don't feel like they are being witch-hunted.
What will customers be required to provide?
Within the POCAMLA laws, it is important to establish sources of funds. If you have received Sh10 million from a bank we need to see if you are the person who should have received it and why you received it. The issue is that we shouldn't bother you too much when you access your money. However, when you are getting money from a source where we should not be receiving money from, we should ask you. For transfers, you still need to show the requirements.
We need to clarify that the law requires us to ask that question. The way we ask is what we need to change. It’s about implementation, it’s not about changing the law. Some (banks) are implementing it well and not everybody is complaining because we know your business, we know what you do. For instance, you run a tea farm and need to pay workers at the end of the month or you have a petrol station and are to bank a million shillings because those are your collections for the day. But there are cases where those questions are still being asked even when you know the person has a gas station or petrol station. Those are the things that need to change. It’s about knowing your customer.
How do we expect to see the application of the new credit scores in the banking industry when some banks are yet to adopt risk-based lending?
It’s not a straightforward process and the reason being, if you are with me and I charge 12 percent and the credit score tells me 15 percent, I am not going to wake up and tell you 15 percent. The implementation is not as simple. It's probably going to be for new customers. The existing customers may not feel it for a while. By the time it is a full credit cycle, it won’t be that simple. I don't think it will be Big Bang.
Let's now talk about NCBA. How is your expansion plan into Ghana going?
We are still in the setup stages. We have applied for our fintech licence with the Central Bank in Ghana and expect that soon. We have our first employee there, so we have a CEO; a country manager. And we are going to be making a few more hires. I am still expecting to launch the business mid-next year. It's only a fintech business. We are working with a local bank.
Fuliza charges were recently cut by 50 percent, how will this affect the bank’s revenues?
Let me start by correcting some perceptions out there. I have seen some notes of people talking about the contribution of Fuliza to our bottom line. Fuliza contributes less than 10 percent of our bottom line. Our view is that the changes have insignificant effects on our bottom line as far as Fuliza's contribution is concerned. We have reduced the charges to 80 percent of the people by 50 percent, but we have seen volumes have already gone up, which means that those losses that would have come as a result of our reduction in pricing are being replaced by volumes. Our view is that the reduction should be less than 10 percent at the end of the day.
What is the expectation with the application of risk-based lending with M-Shwari?
It’s important to say what these products were trying to solve and what they have solved for Kenya. At the outset, access was the most important thing we were trying to solve. Access to savings for M-Shwari, access to loans for M-Shwari and access to overdraft for Fuliza. Many people didn't have access to any of these products. So what we were bringing to them was access to those in a very simple, straightforward manner, working with the partners — Safaricom for M-Shwari and, Safaricom and KCB for Fuliza.
Pricing is almost secondary. Now that the product has come of age, access has been established. Over 18 million customers have benefited from Fuliza and over 26 million customers have benefited from M-Shwari. Our thinking is now we can talk about pricing and hence the changes that were made on Fuliza and M-Shwari pricing.
The changes that we want to make will address the behaviour that we have seen in the market. We have had time to gather the data in the market. Our view, therefore is that there won't be a reduction in terms of our revenue. People get better matched with their pricing, depending on their credit. We expect therefore that people who are highly priced and have very good credit and get better pricing, use it even more. So again, we view that there will be a replacement from volume.