Section 31(4) of the Banking Act, mandates the Central Bank to licence and supervise credit reference bureaus (CRB). The Credit Reference Bureau Regulations, 2013, govern the licensing, operation and supervision of CRBs by the Central Bank of Kenya.
Background
The Kenyan banking sector was, particularly in the 1980s and 1990s, saddled with significant non-performing loans (NPLs), which led to the collapse of some financial institutions. One of the major contributors to this state of affairs were “serial defaulters,” who thrived in the “information asymmetry” environment that prevailed due to lack of a credit information sharing mechanism amongst financial institutions.
The development of a sustainable information sharing mechanism is recognised as a key component in improving the efficiency of financial intermediation. Towards this objective, banking sector stakeholders came together in 2008 and developed the Banking (Credit Reference Bureau) Regulations 2008, which governed the sharing of credit information on borrowers between providers of credit. Regulations initially provided for the sharing of only negative information. However, in 2013 revised CRB Regulations were issued that provided for the sharing of full file information (i.e. both positive and negative).
Benefits to the customer
• A credit report makes it easier for good customers to distinguish themselves from persistent defaulters, thereby attracting favourable loan terms.
• Financial institutions have online access to credit reports generated by the CRBs, resulting in reduced paperwork for the customer and faster processing of loans.
• By making credit histories more portable, customers are able to easily switch between financial institutions and thereby take advantage of competition to secure better credit terms.
Benefits to Credit Providers/Lenders
• CIS strengthens the credit risk management processes for financial institutions.
• It facilitates faster and more efficient reviews of customers’ credit or loan applications.
Benefits to the economy
• CIS creates an opportunity for a wider cross section of the population to access credit, particularly those with no access to tangible collateral.
• It is expected to reduce lending transaction costs while widely availing credit through reduced cost of credit and enhanced competition.
Key Highlights of the Credit Reference Bureau Regulations 2013
• A customer shall be entitled to a free copy of his credit report from a Bureau at least once per year.
• The consent of a customer is required for the submission or sharing of credit information, and such consent may be obtained by the customer signing any document giving express consent or authorisation for the sharing of credit information.
• A financial institution licensed under the Banking Act or Microfinance Act is required to submit both positive and negative credit information to CRBs on a monthly basis.
• A Bureau may, with the approval of the Central Bank, collect, receive, collate, compile and disseminate information relating to a customer of an institution that is obtained from a third party.
• Financial institutions have a duty to provide accurate credit information to CRBs.
• A customer has a right to dispute information contained in a credit report.
