Misuse of credit rating barring access to loans

CBK governor Patrick Njoroge. PHOTO | DIANA NGILA | NMG 

By BRIAN NGUGI

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Summary

• Some banks and bureaus have in the past been on the spotlight for sharing erroneous records.
• The Central Bank of Kenya says this is hampering the usefulness of the credit sharing mechanism.
• The CRBs have in the past defended themselves from accusation of giving inaccurate data on borrowers saying they rely on information provided by banks.

Misuse of credit reference bureaus (CRB) reports has negatively affected the information sharing mechanism and often served to hinder credit access, the Central Bank of Kenya (CBK) has said.

Some banks and bureaus have in the past been on the spotlight for sharing erroneous records or failing to provide up-to-date information even after defaulters pay up.

Now the CBK says this is hampering the usefulness of the credit sharing mechanism.

“The main challenge remains the negative public perception of credit reporting, with most consumers viewing CRBs and credit reports as tools to blacklist them from the financial sector,” says CBK.

Ordinarily, the information CRBs make available info–including a borrower’s total number of current loans, repayment history, previous bankruptcy — that can allow lenders to extend larger credit at more favourable interest rates. But the CBK says this does not seem to be happening.

“Credit providers’ use of credit information in pricing is minimal and they primarily use credit reports to deny or grant credit,” says the regulator.

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CBK blames this in part to a lack of a joint credit information sharing unlike the current model where firms submit borrowers’ information to multiple licensed reference bureaus.

“This is partly attributed to a lack of integration of the credit bureau scores in credit appraisal methodologies of credit providers,” said CBK.

The use of credit reports for credit appraisal process by financial institutions declined by 17 per cent to 4.94 million reports last year indicating the demand for credit was lower during the year, according to the CBK.

As at December 31 last year, 16.2 million credit reports had been requested by the subscribing banks. On the other hand, the requests made by customers increased by 12 per cent to 84,412 last year.

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Currently, Kenya has three credit reference bureaus —Creditinfo CRB, Metropol CRB and Transunion CRB — which has posed a challenge in lodging and resolving complaints as well as providing the data uniformly to all players.

The CRBs have in the past defended themselves from accusation of giving inaccurate data on borrowers saying they rely on information provided by banks.