Kenya: Noose tightens on loan defaulters
By John Oyuke, Standard Media
The Central Bank of Kenya (CBK) is working on ways to rope in all financial institutions into the Credit Information Sharing (CIS) system in order to widen the net for credit reference check.
The mechanism, that will make it difficult for loan defaulters to access credit facilities, is already in place for commercial banks.
The bank’s governor Prof Njuguna Ndung’u said work on the modalities of incorporating Deposit Taking Microfinance Institutions (DTMI) into the new mechanism is in progress.
He said the system will help the Government create a framework where all financial institutions would have access to and exchange credit information across the board.
Banks, DTMIs, Savings and Credit Co-operative Societies (Saccos) and other licensed credit providers would all be incorporated into the system and start sharing credit information with each other.
“It is hoped merging of credit information from these various players will help provide a stronger credit market,” said the governor.
According to Ndung’u this would improve the pool of credible borrowers, decrease defaults, reduce credit costs and ultimately result in a stable financial sector.
CBK has already tightened the vetting process for loan applications in a bid to lower risk and subsequently help bring down interest rates charged by commercial banks.
It has already licensed credit reference bureaus to collect information on customers’ loan repayment history.
The bank has also instructed commercial banks to provide information on their customers, including records of dishonoured cheques, compulsory closure of accounts and late payments or credit defaults on all types of facilities.
Lenders are also required to share information on non-performing loans, false declarations and statements, receiverships, bankruptcies and liquidations.
Although the new plans are not meant to block potential borrowers with bad records from accessing credit facilities, it will guide banks to decide when and how to lend such people money, ordinarily under conditions that are expected to be more stringent compared to that reserved for customers with higher credit scores.
Central Bank believes this will help reduce incidents of non-performing loans and possibly save Kenyans from the high interest rates currently being charged by commercial banks.
The first credit bureau was licensed by CBK early last year after several years of deliberations between the Kenya Bankers Association (KBA), CBK, the Ministry of Finance and the office of the Attorney General.