CBK wants credit scores calculated afresh by bureaus

The Central Bank wants borrowers’ data cleaned and processed by credit reference bureaus to ensure consistency of information given to banks.

The proposed reforms will also see scores harmonised to reduce confusion on what each scoring means.

During a regional conference on credit information sharing in Nairobi, CBK Governor Patrick Njoroge expressed concern that the differing formulas for reviewing credit scores by the various licensed credit reference bureaus (CRBs) was leading to confusion.

Over the past one year CBK has been working with three CRBs - Metropol, CreditInfo and Credit Reference Bureau Africa (trading as TransUnion) - and banks to set up a validation platform and clean data used to rank ability to pay loans.

“The scores will still be different but we will have the three categories of high, medium and low risk much more clearly to ensure consumers and the industry understand the risks,” said TransUnion Chief Executive Billy Owino.

There is a concerted push to change the landscape of how borrowers access credit in post-rate cap times, where good borrowers will be given lower rates and bad borrowers will pay dearly for defaulting.

“A lot of our challenges are historic. Before, we were seen as a blacklisting tool. However, after 2012 we started giving full files listing both good and bad borrowers,” said Mr Owino.

“The problem has been that banks still prefer using our data to limit loans, just inquiring whether a borrower is a defaulter or not, rather than take advantage of the whole offering.”

The banking and finance partner at MMC Africa Law, Jacqueline Wangui, proposed the establishment of a new standalone Credit Act to designate a regulator to oversee credit scoring and information sharing for all providers operating in the market regardless of their industry.

She said a central server for financial technology firms to facilitate submission of client credit information could potentially spell the end of mobile, online and micro lenders’ woes with high-risk loan delinquents and serial defaulters.

“The new model would also address lenders’ apprehensions about credit score consistency across the three main credit bureaus. One other essential safeguard of the proposed credit information central server would be to preserve the integrity of credit scoring so that everyone has a number that accurately determines their credit worthiness,” Ms Wangui said.