Mis­use of credit rat­ing bar­ring ac­cess to loans

Reg­u­la­tor says banks and CRBS share wrong records and use them only to deny or grant loans

Business Daily (Kenya) - - MONEY & MARKETS -

Brian Ngugi

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

Some banks and bureaus have in the past been on the spot­light for shar­ing er­ro­neous in­for­ma­tion

Njoroge. CBK gov­er­nor Patrick

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.

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.

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.

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