Metropol Corporation has developed a digital platform that enables borrowers to post their credit score-backed loan applications for lenders to bid with different interest rate offers.
The new platform seeks to put credit market power in the hands of the borrowers.
Sam Omukoko, the Metropol managing director, said the idea is to shift from the lenders, who have been using the credit scores to blacklist bad customers, to the borrowers.
Small businesses and individuals with good borrowing history can now obtain their credit scores and use them to negotiate better loan terms with banks if Parliament repeals the interest rate capping law, Kenya’s largest credit reference bureau, has said.
Metropol Corporation has developed a digital platform that enables borrowers to post their credit score-backed loan applications for lenders to bid with different interest rate offers, in a move that seeks to put credit market power in the hands of the borrowers.
Sam Omukoko, the Metropol managing director, said the idea is to shift from the lenders, who have been using the credit scores to blacklist bad customers, to the borrowers.
“Instead of customers crying that banks are overcharging, we are handing the power of choice over to the borrower,” he said.
When operational, Metropol hopes the platform will get banks shopping for customers with good standing in the credit market and enable good borrowers to benefit from the full-file credit information sharing mechanism that has been in place since February 2014 .
“This is going to happen when all of us go to banks carrying our credit scores and demand that they be considered when pricing our loans,” Mr Omukoko said, adding that the bureau has segmented the credit market based on geographical clusters, to create ‘credit communities’.
This means traders in a particular locality can, for instance, do business with one another and with local banks using information from the credit community. Mr Omukoko said the credit communities have been created in Mombasa, Kisumu, Nakuru, Eldoret, Kakamega, Machakos, Meru and Nyeri with detailed information on both borrowers and lenders.
“As we empower the customer through the knowledge of credit score, we are also empowering the lender to share (loan repayment) data and access customer profile within that trading community,” he said. “That makes it easy to deal with a serial defaulter within a credit community.”
The Central Bank of Kenya (CBK) championed the enactment of Credit Reference Bureau (CRB) Regulations 2013, allowing the sharing of credit information on customers, who pay their loans promptly as well as the defaulters.
The idea was to empower small borrowers with low credit risk, based on their loan repayment history, to access loans on better terms than defaulters, a strategy employed by banks when processing loans for corporate clients.
Use of the credit information sharing mechanism has since spread to other segments of the credit market such as saccos, utilities and mobile phone-based lenders.
More recently, however, the failure of banks to use credit scores to significantly lower loan charges for individual borrowers and small business has brewed controversy leading to the enactment in September 2016 of law capping interest rates.
Enforcement of the Banking (Amendment) Act 2016 in September 2016 has, however, produced different results – as most lenders stopped issuing unsecured loans to individuals and small business who were being charged as much as 28 per cent interest prior before the rate caps.
Ultimately, the rate cap has mainly benefited big business and the wealthy, who the banks see as carrying low-risk.
The government, through Treasury bills and bonds auctions, has also become a big recipient of bank loans since the passing of the rates capping law.
In the past one and half years that the law has been in force, small business and individuals have mainly relied on expensive mobile phone based lenders and exploitative shylocks, causing a slowdown of credit growth to the private sector to 2.1 per cent in February from more than 25 per cent mid-2014.
Treasury secretary Henry Rotich last Thursday proposed to repeal the rates capping law bringing to fruition a promise President Uhuru Kenyatta made early in the year.
“In order to enhance access to credit and minimise the adverse impact of interest rate capping on credit growth while strengthening financial access and monetary policy effectiveness, I propose to amend the Banking (Amendment) Act, 2016 by repealing Section 33B of the said Act,” Mr Rotich said in his budget statement to the National Assembly.
Members of Parliament and consumer groups have, however, vowed to fight any attempts to scrap interest rate controls.
Mr Rotich is banking on the controversial Financial Markets Conduct Bill 2018, which proposes to keep all charges by lenders in check, to convince legislators to repeal the law.
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