Year 2008 saw the amendment to the Banking Act spearheaded
by the Central Bank of Kenya to create an enabling environment for credit
information sharing in the banking sector. This was premised on creating
stability in the financial services sector.
The amendment created a forum for permission to share credit
information and the regulations to be followed in the sharing mechanism. The
legal and regulatory framework came into place in the year 2009.
With the market being wider than what commercial bank covers
there have been developments towards having additional players brought on board
and subsequent amendments to the Sacco Societies Act and the Microfinance Act
also being brought into conformity to the information sharing mechanism.
The Operational Space
The Central Bank licenses the Credit Reference Bureaus (CRB’s)
as information custodians and participating institutions submit to and get information from
the CRBs about their potential and existing borrowers. There are agreed formats
and rules of engagement for sharing credit information. We currently have 3
licensed bureaus.
The immediate shortcomings once the sharing platform commenced
in 2009 was that institutions were initially sharing the negative information
meaning if customers who were up to date in their payments their full credit
information was not available.
Year 2013 saw the expansion of the regulations to net in the
full credit profiles for the borrowers. This meant that the participating institutions
had to share both positive and negative information. The changes also netted in
Regulated Micro-finance institutions. The CRBs business was expanded to include
credit scoring, permitted CRBs to collect information from Third party legal
institutions like Company registries, Court registries, land registries,
licensing authorities among others.
Also, subject to consent, third parties may also obtain
information from Bureaus for purposes of their decision making. It’s also
important to note that the Bureaus are under strict supervision of the Central Bank
of Kenya.
Credit information is private information and we all have a
right to privacy. The amendment to the banking act is clear on the objectivity
of the need for the information. Banks, lenders and all legal entity requiring
the credit information must engage within the rules. Credit profile information
is not public information.
There exist safeguards on what can be shared. Information
that is mandatory for the purpose is limited to the objective content required
for decision making on the subject matter involved. For example, the identity
prior to disclosure the most common is the national identity document as the
unique identifier. Information is only shared and obtained through licensed
CRBs by authorized sources.
The public is also given the right to information by having
any person whose information is to be shared to be informed through a pre-listing and a post-listing notice. The information providers should provide the
correct information to the bureaus. All players are required to have competent personnel
to handle and explain information where required. A listed entity has a right
to a free copy of the information annually, access to information and in case
of a dispute to have the information corrected in a defined procedure.
With time the challenges that the mechanism has encountered
are matters that can be resolved without acrimony since our supreme law
provides for alternative dispute resolutions before court actions. Proper
record keeping and competence and timely resolution of the disputes that may
arise is helping a great deal in the sharing mechanism settling in.
The Shortcomings and
future development areas
Despite the developments for the information sharing
mechanism, there are challenges in the framework. For example, there is absence
on a uniform regulatory system, there lacks clarity on the participation of
third parties, more inclusivity needed in the regulations and credit reports
are not homogeneous pointing to a need of solid validation rules to be adopted
by the bureaus. The legal anchoring of the framework is not solid and even in
cases where listed parties have gone to court we need develop jurisprudence on
the same.
As mentioned earlier, the market is wide and has many
players with interest in participation. There is lots of legislation needed on
the existing Credit information sharing framework. Considering the scope of the
profile we would want to create and as the law is expansive there is need to
net the various lenders outside the coverage of the framework like Saccos,
Government lending initiatives, Agriculture Finance companies, Utility
companies, Venture Capital providers.
Lenders are also known to use for the last few years the
credit profile reports from CRBs as a basis for lending to new and existing borrowers.
Curiously though is the fact that despite the information available to lenders
and more so regulated lending institutions, the volumes of non-performing loans
in increased from KShs. 207 Billion in year 2016 to KShs. 272 Billion in year
2017 as per the 2017 CBK summary reports. Are we making good use of the credit information available as lenders?
Kahugu Muiruri
May 12, 2018
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