Kenya’s Central Bank Cracks Down on Bad Debts: Credit Reference Bureaus Drive Financial Inclusion and Transparency

In the heart of Kenya’s financial sector, the Central Bank plays a pivotal role in regulating and overseeing credit reference bureaus (CRBs) under Section 31(4) of the Banking Act. This move is aimed at curbing rampant non-performing loans (NPLs) that plagued financial institutions during the 1980s and 1990s. The Credit Reference Bureau Regulations, 2013, serve as the guiding principles for licensing, operation, and supervision of these bureaus.

A New Era in Credit

The Kenyan banking sector has made remarkable strides in recent years, but it wasn’t always that way. Decades ago, high NPLs and the lack of an effective credit information sharing mechanism saw some financial institutions crumble. The ‘serial defaulters’ flourished in a world of information asymmetry.

To address these issues, leading banking sector players gathered in 2008 and formulated the Banking (Credit Reference Bureau) Regulations, 2008. Initially focused on negative credit information sharing, the sector upgraded to the revised CRB Regulations in 2013, which opened doors to the exchange of full file information – both positive and negative.

Customers Reap the Rewards

Customers stand to gain significantly from credit information sharing (CIS). A credit report serves as a valuable tool to distinguish themselves from persistent defaulters, giving them a better chance at attractive loan terms. Furthermore, financial institutions can access credit reports online, leading to reduced paperwork, quicker loan processing, and increased portability.

• A credit report is an essential tool for customers.
• Online access to credit reports reduces paperwork and speeds up loan processing.

Credit Providers and Lenders: Gaining an Edge

Financial institutions reap numerous benefits from CIS.

• Enhanced credit risk management processes
• Streamlined credit application reviews
• Increased transparency

These benefits contribute to stronger credit institutions and a more resilient financial sector.

The Economy: A Winning Combination

CIS fosters financial inclusion by creating opportunities for underserved segments of the population to access credit. It also reduces lending transaction costs, making credit more accessible and affordable for a broader population. The benefits of CIS reverberate beyond individual institutions to enhance the overall health and competitiveness of the Kenyan economy.

Key Provisions of Credit Reference Bureau Regulations, 2013

1. Customers are entitled to one free copy of their credit report from the Bureau each year.
2. Obtaining a customer’s consent is a prerequisite for submitting or sharing their credit information.
3. Financial institutions, operating under the Banking Act or Microfinance Act, must share both positive and negative credit information with CRBs on a monthly basis.
4. CRBs are approved by the Central Bank to collect, receive, collate, compile, and disseminate third-party customer information.
5. Financial institutions must submit accurate credit information to CRBs, and customers have the right to dispute any inaccurate information in their reports.