Credit Information Sharing Association of Kenya chairman Charles Ringera, CBK Governor Patrick Njoroge and bankers association CEO Habil Olaka at the credit sharing conference in Nairobi August 27, 2018. PHOTO | SALATON NJAU | NMG
The Credit Information Sharing Association of Kenya (CIS) said banks need to be allowed to determine the rate of interest or value of collateral demanded from each borrower based on their borrowing history.
CIS Kenya Chief Executive Jared Getenga said time is now ripe for the industry to use a credit score system that will inform banks of one’s predictable capability of repaying loans.
Capping of interest rates has denied good borrowers who make timely loan repayments the opportunity to enjoy cheaper loans, players in the financial sector have said.
The Credit Information Sharing Association of Kenya (CIS), whose membership includes credit reference bureaus, lenders and regulators, said banks need to be allowed to determine the rate of interest or value of collateral demanded from each borrower based on their borrowing history.
The rate cap law has seen banks unable to price in risk when lending to customers, the result being that the lenders have resorted to charging almost all their customers the maximum allowable rate (or nearly the maximum) in order to hedge against loan losses.
CIS Kenya Chief Executive Jared Getenga said time is now ripe for the industry to use a credit score system that will inform banks of one’s predictable capability of repaying loans.
“We have been collecting borrowers’ data for the past eight years, which is sufficient to use in determining the interest rate and collateral value to be given as a condition for issuing a loan to a borrower,” said Mr Getenga during the opening of the 4th Regional Conference on Credit Information-sharing in Nairobi on Monday.
“We have 11 million individual accounts of borrowers and we have analysed the same for use in the borrower’s future engagement with lenders. However the interest rate cap is denying the borrowers an opportunity to let “good” borrowers enjoy cheap loans.”
Kenya Bankers Association chief executive Habil Olaka said banks are ready to provide loans based on one’s credit history but their hands are tied by the rate cap law.
“Ninety-five per cent of Kenyan borrowers are good but continue to be subjected to tough loan conditions that deter banks from applying a risk-based credit pricing,” he said.
Mr Olaka welcomed the Central Bank of Kenya’s plan to introduce a Kenya Bankers’ Charter where all lenders will be required to provide details of how they use risk based credit pricing when giving out loans.
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