Major relief for borrowers as banks unveil tool to calculate cost of loans

Kenya Bankers Association CEO, Habil Olaka (left) and KBA Chairman and KCB Group CEO Joshua Oigara (centre) go through features of the newly launched “Credit Calculator” Website with Simon Lee of Farewell Consultants. (COURTESY)

Through the Annual Percentage Rate initiative, banks will disclose all costs that go into pricing a loan

Kenya Bankers Association (KBA) has launched a new tool that borrowers can use in making decisions on borrowing.

This comes after the Central Bank of Kenya (CBK) launched a new formula - Kenya Banks Reference Rate (KBRR) - which will be the basis rate for banks to price their loans to borrowers. In response to these instruments, Standard Chartered Bank Kenya Limited has become the first bank to lower its lending rates to 14.9 per cent, based on the new benchmarks.

Others are expected to follow suit, especially after Treasury recently warned it will publish a list of expensive lenders each week.

KBA Chairman and Kenya Commercial Bank Group Chief Executive Joshua Oigara said the industry has launched the Credit Calculator Online to provide salient information on its new pricing regime.

“It has tools for borrowers to use when making a loan decision, including a quick Annual Percentage Rate estimate and a comprehensive calculator that captures all the costs associated with a loan facility,” he said.

Mr Oigara was speaking during the unveiling of the Annual Percentage Rate (APR) and launch of ‘Cost of Credit’ website at a Nairobi hotel yesterday.

The Credit Calculator Mobile App offers both a quick estimate and comprehensive calculator and can be downloaded from Google Play as well as www.costofcredit.co.ke.

“KBA plans to go beyond interest rates and have the Cost of Credit Committee and market players identify priority initiatives to address these inefficiencies in the next 12 months,” Oigara disclosed.

Among the initiatives are reforms in the lands and companies registries, establishment of the legal and regulatory framework to support the creation of an electronic movable assets register.

The industry lobby also plans to expand credit information sharing beyond member banks to all regulated banks and other entities, including non-bank credit providers, utilities and mobile network operators.

“All these initiatives will be overseen by the Cost of Credit Committee and the completion of this exercise will ultimately enable customers and potential borrowers to have a more efficient credit system and enhanced access to credit for this market,” Oigara said during the launch.

Through the APR initiative, banks will disclose all costs that go into pricing a loan.

Kenya Bankers Association (KBA) Chief Executive Habil Olaka said this will be based on standardised parameters and a common computation model that KBA developed with assistance from Financial Sector Deepening (FSD) Kenya.

“This launch follows a successful two-month pilot period during which our member banks tested the model within their institutions,” he added.

Olaka explained that in addition to providing loan applicants with information on the reference rate or KBRR and bank premium, which is known as “k”, banks would provide borrowers with the loan repayment schedule and total cost of credit expressed as the APR.

By comparing costs on a uniform basis before signing a contract, consumers are empowered to make an informed decision and get the highest value from the industry. APR is expected to lead to more competitive rates for borrowers with a good credit track record. Through the APR initiative, banks will disclose all costs that go into pricing a loan.