Equity Bank will price its loans to thin-SIM Equitel subscribers on their borrowing history in a system that will reward good borrowers with cheap loans.
James Mwangi, chief executive of the bank, said the gap between good and bad borrowers will be four percentage points. This means that while a good borrower can get a loan for 16 per cent a bad borrower will access the same facility for as high as 20 per cent.
“We have eight different interest rates applicable with the difference as high as four hundred basis points,” said Mr Mwangi during the official launch of the thin-SIM technology that will offer voice and data products.
Records of how one has settled previous debts will be used to give them a credit score and determine the rate they should be charged.
Mr Mwangi said the bank has already scored all its customers and pre-determined the amount they qualify for in case they apply for short-term debt.
The Central Bank of Kenya has allowed for sharing of negative and positive information among banks and other financial institutions in order to ease access to credit and reward good borrowers.
Banks have however been criticised of using negative information only to lock out defaulters from credit access and to push them to settle their dues while failing to reward the good borrowers.
Banks have argued that most of their systems support credit prices based on the product risk and not the borrower. This means a mortgage loan will be offered at a standard price to a good and bad borrower based on how risky the bank views the mortgage sector.
Banks are also expected ease the terms of credit to loyal borrowers through shorter processing periods and without collateral.