Sharing of credit information will enable borrowers build credit history which they can use to negotiate for better credit terms. Positive credit history can also be used by borrowers as alternative collateral to traditional physical collateral. Through availability of affordable credit, economic activity will be stimulated. On the other hand, lack of information on borrowers results in two challenges for lenders: Borrowers having more information about themselves than the lenders which causes credit providers to severely restrict lending to only those customers they know about. This is referred to as information asymmetry; or Lenders restrict lending by raising interest rates (risk premium) to cover information search costs and to cater for possible default.

A credit reference bureau (CRB) is a company licensed by the Central Bank of Kenya to collect and collate credit information on individuals and companies from different sources and provide that information in form of a credit report upon the request of a credit provider. Credit providers can only request a report on a borrower who has actually applied for a loan from them. Currently, there are three licensed CRBs in Kenya - Creditinfo CRB, Metropol CRB and Transunion Africa CRB. You may also access the list of licensed CRBs on the Central Bank website under the link: http://www.centralbank.go.ke/financialsystem/creditreference/LicensedCRBs.aspx

A credit report is a record on an individual’s/company’s borrowing and repayment history. It contains information such as: 1) The CRB issuing the report and the date of issue 2) A borrower’s personal details (name, contacts, ID number) 3) A summary of a borrowers loan accounts and their status. This includes loans a borrower’s loans that are being repaid satisfactorily as well as those whose repayment status is unsatisfactory or in default. 4) A summary of the number of times financial institution(s) have requested for a borrower’s credit report in the last 30 days. This helps to indicate the number of times a borrower has made a loan application, thus help in assessing a borrower’s behavior.

The role of CIS can be viewed from three perspectives; a borrower’s, a lender’s and from an economic standpoint. CIS strengthens the risk management processes. The character of a customer is important in assisting a credit provider to determine whether the loan will be repaid. To arrive at this, various elements come into play, and these are often summarized into the 5 Cs of credit, namely: Character (integrity); Capacity (sufficient cash flow to service the obligation); Capital (net worth); Collateral (assets to secure the debt), and Conditions (such as the interest rate and amount of principal, etc) Assessment of character can be a nightmare where there is no formal, independent source of information on a customer’s management of past loans. This arises because of informa­tion asymmetry. Information asymmetry means that customers have more information than the credit providers. CRBs however offer a better solution. A customer’s information on previous loan repay­ments with credit providers is made available on one document – a credit report. The credit report makes it easier for credit providers to review a customer’s credit or loan ap­plication faster and more efficiently. Additionally, as borrowers build their credit histories, it is expected that CIS will also play a role in the development of unique credit products by financial institutions hence unlocking access to affordable credit.

A credit report makes it easier for good customers to distinguish themselves from persistent defaulters, hence keeping their reputation intact. Additionally, it consolidates a customer’s positive credit information from various lenders in an official, credible database accessible by both the customer and the credit provider. This makes it easier for customers to negotiate for better credit terms on the strength of their good re­payment history. CRBs make credit reports available as evidence of good performance which could translate to a lower cost of credit, flexible repayment periods, and lower reliance on tangible collateral such as land and buildings amongst other preferential terms. Credit providers have online access to credit reports generated by the CRBs resulting in reduced paper work for the customer and faster processing of loans. The need for credit providers to use 3rd party investigators to confirm details of the loan applicant is eliminated. The costs associated with this (called search costs) will no longer be passed to the borrower. By making credit histories more portable, customers are able to easily change credit providers and thereby take advantage of competition to secure better credit terms.

Other than the traditional credit providers like banks who are the main source of credit information, others include company’s registry, registrar of business entities, business and trade licensing authorities, land registries, tax authorities, county government entities, court registries in respect of information on judgments on debts, insolvency or bankruptcy proceedings or winding up orders, registrar of names, registrar of persons or other relevant public bodies.

Currently, the authorized users of credit reports issued by the licensed CRBs is restricted to institutions licensed under the Banking and Microfinance Acts – commercial banks, mortgage finance companies, non-bank financial institutions and deposit taking microfinance institutions and third parties with express authority from the customer. It is also important to note that a financial institution can only access your credit report once you make a loan application with them.

A credit report can be used to Evaluate a customer’s application for credit or other customer-initiated business transaction; Recover any sum due to an institution; For customer account management, fraud detection and prevention, credit rating, employment evaluation, tracing owners of unclaimed assets, development of a scoring system, assessment of a debtor’s books of business; Assessment of credit facility; Underwriting insurance Determination of the customer’s eligibility for a license or benefit granted by the Government; Assessment of the credit or prepayment risks associated with an existing credit obligation Need for information, in connection with business transaction initiated by the customer or other lawful transaction or matter concerning the customer; For other purposes that may be approved by the Central Bank.

Public Sources Private Sources credit information

Initially, banks were obligated to submit negative data only to licensed CRBs. This includes information on: non-performing loans; dishonour of cheques other than for technical reasons; accounts compulsorily closed other than for administrative reasons; proven cases of frauds and forgeries; proven cases of cheque kitting; false declarations and statements; receiverships, bankruptcies and liquidations; credit defaults or late payments on all types of facilities; tendering of false securities; and Misapplication of borrowed funds. However, following the gazettement of the Credit Reference Bureau Regulations 2013, in January 2014, banks and microfinance banks are now required to share both positive and negative credit information of their customers. This means that borrowers with a good repayment behavior now have the opportunity of consolidating their good record.

After the gazettement of the new CRB regulations 2013 that allow for full file sharing among Banks and licensed MFBs, both institutions are expected to submit their entire loan book to the licensed CRBs by 10th of each month.

The CRB Regulations, 2013 requires that CRBs meet the prescribed data security standards in both the transmission and storage of information in their custody. CBK confirms this before licensing a CRB and on a regular basis through data security audits. These are aimed at ensuring that customer information is protected against unauthorized access, use or disclosure.

Yes. Under the CRB Regulations 2013, customers have the right to know what information a particular institution has submitted to the CRB on their accounts. To facilitate this, customers are entitled to a free copy of their credit report once a year and within thirty (30) days of receiving notice from lenders conveying unfavorable or adverse information regarding customers’ credit application or profile. Customers can also request for their credit reports at any time, but will have to meet the relevant costs as agreed between the CRBs and the subscriber banks/MFBs. It is worth noting that customers are expected to request for their credit reports from licensed CRBs in writing. Additionally, banks and microfinance banks are required to communicate to customers to issue them with notices through: registered mail or certificate of posting; e-mail; short message service through the customer’s registered telephone number; or Physical delivery of the letter evidenced by acknowledgement of receipt by the customer or his nominee, where the physical address of the customer is known.

Yes. The CRB Regulations 2013, set out the procedures for dispute resolution. If any dispute is not satisfactorily resolved within fifteen days after the customer has notified the CRB of his objection, such disputed information shall be removed from the database of the CRB. The disputed information may, however, be reinstated if found to be correct after due investigation by the CRB and concerned bank. The Association of Kenya Credit Providers (AKCP) has developed an Alternative Dispute Resolution framework to facilitate the prompt and fair resolution of any CIS-related disputes between borrowers, credit providers and the CRBs. The ADR process is summarized in the flowchart below: Consumer

Licensed CRBs are required under the CRB Regulations to hold information on non-performing loans and other negative information submitted to them by banks for at least 5 years. A negative listing on a borrower’s credit report does not mean that one cannot access a loan facility any more. It only means that lenders will treat you with more caution while appraising your loan, which might result to more stringent loan terms.

A Consumer has the right to: Obtain a copy of a credit report from each Bureau; Dispute information in the file of the CRB Obtain a credit score from a Bureau, and a description of how the credit score was arrived at; The method by which a customer can contact, and obtain a credit report from, a Bureau without charge should be clarified. Refer a dispute to an alternative dispute resolution mechanism or a court of law where he feels that his dispute has not been resolved to his satisfaction.