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NEWS & CURRENT AFFAIRS

The Nairobian

Credit information tool to lower lending rates

Business

By Nicholas Waitathu | Sep 26, 2013

By Nicholas Waitathu

Full-scale implementation of the Credit Information Sharing (CIS) mechanism by financial institutions is expected to contribute to reduction of the current high interest rates in the market.

According to Kenya Women Finance Trust Limited (KWFT) Managing Director Mwangi Githaiga, the initiative will also contribute to enhancement of financial inclusiveness.

He said the approach is positive, as the history of clients will now be known within financial circles. “More so customers with good records will attract high attention by the financial institutions in terms of being considered for loans,” said Githaiga.

Lending products

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He pointed out that including Deposit Taking Microfinance institutions (DTMs) and credit unions in the credit information sharing platform would guarantee a more complete picture of customers to lenders who would then be better placed to tailor their lending products to suit the credit requirements of the said borrower. “A comprehensive database minimises the chances of a customer’s over-indebtedness and defaulter migration, which is triggered by arbitrage opportunities that pose a major threat to the financial sector,” he added.

Since 2010 when the CIS was initiated, banks have been sharing mainly negative information about loan defaulters.

The web has been widened to include DTMs and Savings and Credit Cooperative Societies (Saccos).

The level of defaulters in the various segments in the financial sector varies based on the level of penetration.

For example, according to the Bank Supervision Annual Report 2012, gross loans grew by 11.7 per cent from Sh1.1 trillion in December 2011 to Sh1.3 trillion in December 2012.

The growth is attributable to increased demand for credit by the various economic sectors. However, the ratio of non-performing loans to gross loans increased from 4.4 per cent in December 2011 to 4.7 per cent in December 2012.

Githaiga said the level of defaulting in the microfinance sector stands at two per cent.

He explained that sound reforms that have been pursued in the industry in the last few years have assisted in lessening the number of defaulters. Further, he added the figure is expected to go down as credit information sharing is intensified.

Central Bank Governor, Prof Njuguna Ndung’u observed that the new requirement for participation of licensed DTMs marks the first step towards inclusion of non-bank credit providers in order to make the database more comprehensive.

Information sharing

“Expansion of the database to other credit providers will provide a complete picture of the customers and enable the providers develop tailored products to their requirements,” he said.

Ndung’u spoke when presiding over the launch of 2nd regional credit information sharing conference two days ago.

Sacco Societies Regulatory Authority (Sasra) Chief Executive Officer Carilus Ademba stated that non-performing loans among Saccos, which comprise substandard, doubtful and loss loan accounts constitute 9.6 percent of the gross loan portfolio.