Kenyans could begin accessing financial services based on a credit score as early as next month, signalling a new era in consumer finance
This comes as credit bureaus in Kenya finalise a credit rating system that will see all Kenyans receive a score based on their ability and consistency to service loans.
According to the Association of Kenya Credit Providers (AKCP), this is part of the next phase of credit information sharing, which began more than four years ago and now goes beyond non-performing loans (NPLs) to also benefit consumers who service debts on time.
“When credit information sharing among financial institutions began in Kenya, the aim was to enable financial providers reduce the level of NPLs, which had led to the collapse of several banks,” said Mr Jared Getenga, AKCP’s CEO.
“However, we turned our attention to performing loans, which are the majority, and also consumers who regularly service their loans, with the aim of giving them credit scores that should enable them receive cheaper loans.”
Risk profile
The new credit score system, expected to go live next month, relies on credit files collected from commercial banks, credit card companies and deposit-taking microfinance institutions (DTMs) to generate the creditworthiness of each individual consumer.
Although banks already have internal systems that evaluate the risk of individual clients before engaging them on financial products, the new credit score system will be an aggregate gathered from across the industry.
“Many consumers in Kenya have more than one bank account and a Sacco, so relying on a risk profile built from only one of these institutions gives an incomplete picture of the creditworthiness of an individual,” said Mr Getenga.
“The credit score collects information from all these providers and computes a figure that will enable providers determine more accurately who qualifies for a loan, at what interest rate and what credit limits.”
Consumers with good credit scores will be able to use this figure as a bargaining chip to negotiate favourable interest rates or larger loans.
Although the credit score at the moment relies on data collected from banks and DTMs, there are plans to include the Higher Education Loans Board (Helb), Saccos and utility firms like Kenya Power.
The country had 17.3 million customer deposit accounts and 2.3 million loan accounts as at last year. The new rating system is expected to see the financial sector grow even more robustly and join the league of other countries in Africa with credit scoring system, such as South Africa, Nigeria, Egypt and Morocco.
However, several challenges still stand in the way and financial service providers remain cautious.
“We are dealing with a lot of data, and as is the case when working on big data projects, there are challenges of ensuring the data is complete and the margin of error is kept as small as possible,” said Getenga.
Also, some data exists only in manual files and is yet to be digitised, which will make it difficult to capture a client’s complete credit history.
At the same time, there is an element of mistrust as financial institutions fear their rivals might poach high-end clients once they realise they have good credit scores.
“This might be a challenge on the end of banks, but for customers, it will mean that the competition will offer them more variety and better services.”
AKCP also believes the pressure on banks to give lower rates will come from the newly instituted Kenya Banks Reference Rate (KBRR), currently set at 9.13 per cent, which is to be the basis for banks to price their commercial loans.
Another challenge is low access in rural areas since all CRBs are located in Nairobi, making it difficult for clients outside the city to access credit reports. However, there is a proposal to set up agency CRB facilities in these regions.
“The Government and regulators are currently working on provisions for an agency model to make sure people do not have to travel all the way to Nairobi to get CRB services,” said Getenga.
fsunday@standardmedia.co.ke
