Start lending on positive credit rating

KCB chief executive officer Joshua Oigara (left) and group chairman Ngeny Biwott during the bank’s half-year results briefing in Nairobi in August last year. FILE

By Jaindi Kisero, jkisero@ke.nationmedia.com

Methinks that we in the business and financial press did not give adequate attention and prominence to one recent major happening to do with the sharing of credit information between providers and reference bureaus.

I refer to the decision by National Treasury Henry Rotich to gazette the rules and regulations which will govern the sharing of positive credit information.

How I long to see the day banks will start lending to individuals on the basis of a positive credit rating. Why should a person or institution that pays and services loans regularly be charged the same interest rate with a bad borrower?

If the sharing of positive information kicks in, a person with a good credit history will now be able to negotiate his own terms.

We started five years ago with the introduction of credit reference bureaus. Two were licensed. But until now, only negative information has been shared.

Today, opinion is unanimous that the advent of credit reference bureaus has played a major role in reducing the size of the non-performing loan portfolio carried by our banking system.

We started by allowing the sharing of negative information mainly among commercial banks under the Kenya Credit Information Sharing Initiative.

It all progressed last year to the launch of the Association of Kenya Information Providers, which brought in all other major credit providers onto the platform: saccos, microfinance lenders and utilities.

Clearly, the sharing of negative credit information has been a success. But with the gazettement of the rules for sharing positive data, we have clearly hit a new milestone.

It will now be possible for credit information bureaus to provide more comprehensive reports. A borrower with a high credit rating will now be able to negotiate for favourable terms.

Banks in this country mainly lend against tangible securities. But since the majority don’t have tangible assets, many Kenyans can not access bank loans.

If our banks can embrace lending on the basis of positive credit information, we will have moved a notch higher in terms of access to credit.

Which brings me to the latest initiative by the government to bring down lending rates spreads. It all began with deputy president William Ruto challenging the Central Bank of Kenya to push commercial banks to adopt a pricing formula to allow spreads to come down.

Then the governor of CBK responded by constituting a committee to advise on how to bring the cost of credit down.

As it turned out, the committee constituted by the governor was disbanded. I now gather that the National Treasury has established a new committee which was yet to be unveiled as we went to press.