Credit Reference Project Phase II Mid Term Review
Lending is an important element of financial intermediation, which is itself at the heart of an economy’s financial architecture. It therefore behoves policy makers to continually review the credit market to minimize inefficiencies that hinder faster economic growth. Non Performing Loans, though declining, remain a concern to the quality of lenders assets in Kenya’s financial sector. In addition, good borrowers have been disadvantaged by high interest rates and stringent collateral requirements, as banks cushion themselves against the risk of high Non Performing Assets.
These challenges have been an outcome of information asymmetry, which in the past continually led to the rejection of good credit risk applicants because their credibility could not be objectively proven. On the flip side, serial defaulters adversely affected bank performance, threatened sector stability and inhibited growth of credit to the private sector.
As a result, the need to introduce credit referencing as a risk management tool was identified by Kenyan lenders as necessary to create a vibrant and globally competitive financial sector. Following remarkable efforts and support of the Central Bank of Kenya (CBK), Kenya Bankers Association (KBA), and Financial Sector Deepening Trust (FSD–Kenya), a successful roll out of the credit information sharing mechanism amongst banks was officially launched in July 2010.
