Tracking information sharing journey in East Africa, Kenya

It is difficult to determine an appropriate yardstick against which to judge the performance of Kenya’s credit information-sharing mechanism. FILE PHOTO | SHUTTERSTOCK

By FRANCIS GWER More by this Author

Recently, global financial markets and commentators have been gripped by the

collapse of Silicon Valley Bank (SVB) following a run on its deposits.

The failure of the 40-year-old institution, the 16th largest in the US, and the ensuing contagion continue to reverberate across global financial markets.

Kenya too has a chequered history of bank failures. The first bank closure in Kenya was in December 1984, followed by 1989 when seven financially distressed institutions were consolidated into the Consolidated Bank of Kenya.

The 1990s heralded a new era of bank failures. In 1993 alone, 11 institutions were placed under liquidation followed by two in 1994.

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A common factor that threaded these failures was the relatively high and unsustainable levels of non-performing loans.

In response, the Monetary Affairs Committee (MAC) of the East Africa Central Bank Governors in 1995 directed member central banks to work with their respective bankers’ associations to develop credit information sharing frameworks.

In the early 2000s, the banking sector through an initiative of the Kenya Bankers Association (KBA) began to develop an information-sharing mechanism modelled on best practices from other jurisdictions.

At the same time, the Central Bank of Kenya in consultation with KBA initiated the process of developing the enabling legal framework.

Earlier in 2001, the East Africa Credit Bureau Association (EACBA) had been formed as part of attempts to influence the development of the legal framework.

In 2003, an amendment to the Banking Act provided legal provisions for the sharing of credit information among banks.

A breakthrough was achieved when the banks realised and accepted that the solution was to outsource the service to a private sector bureau licensed by the CBK.

The attendant Credit Reference Bureau regulations were gazetted in September 2008, providing for the establishment, operations, governance and management of credit bureaus and their supervision by the CBK.

Following the enactment of the regulations, a joint CBK/KBA task force developed a comprehensive constitution and code of conduct for the industry association.

Consideration was given to the need for integrating microfinance institutions, savings and credit cooperative societies and other non-bank credit providers into the information-sharing mechanism at a later stage.

On August 27, 2009, the Association of Kenya Credit Providers was formally launched. It was subsequently renamed the Credit Information Sharing Association of Kenya CIS Kenya.

On February 9, 2010, the CBK issued a licence to the first credit reference bureau in Kenya, CRB Africa Limited. 

The following year in 2011, the first regional CIS conference on raising awareness of best practices in credit reporting was held.

It is difficult to determine an appropriate yardstick against which to judge the performance of Kenya’s credit information-sharing mechanism.

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Success can be judged by looking at the policy outcomes against relevant international measures or simply looking at the success of the policy systems and outcomes on their own terms: to what extent have the stated objectives been met?