Central bank of Kenya has introduced the Kenya credit reference bureau into the banking industry in Kenya. This is an important body that changes the way that credit in Kenya will be handled. It will also determine how the applicant for a loan facility will be rated.
In many parts of the world credit bureaus have been in operation for many years. They give credit rating for customers and it makes it easier for banks and financial institutions to give loans to majority of customers who are able to repay the loans. The Kenya credit reference bureaus are used to ascertain the credit worthiness of customer for loans.
Why the Kenya Credit Reference Bureau
With the legislation of the Kenya credit reference bureau in 2008, the central bank allowed a third party to source customer credit history. In the past, banking in Kenya had clauses that protected the customer, because the banks were not allowed to share customer banking details. There were customer confidentiality clauses binding the banks from sharing information about customers. This made the sharing of important information like the bad debtors illegal. The sharing of customer information has now been allowed, showing the importance of the Kenya credit reference bureaux.
It is mandatory for banks to give a listing of all their bad debtors’ information to the Kenya credit reference bureau. The information collected from all financial institution is collated and is useful especially for credit facilities. It is seen as a way to ensure that bad debts reduce. The bad debts in banks have meant that profits have been limited, since the bad debts have to be provided for in the financial statements of the banks.
Importance of Kenya Credit Reference Bureau
The banks’ reputation has also been affected by the huge bad debts portfolio. Banks with high bad debts provisions are seen as failures in their operations. The banks images will be improved meaning increased business for the banking sector.
When an applicant approaches a bank for credit facilities, the bank submits the identification number of the customer and their name. The Kenya reference bureau confirms if the applicant has been listed on their data base for any reason. A report is then given to the bank. If the applicant is listed, the application is declined. The reason may be given to the customer if they inquire or require it.
How to improve your Kenya Credit Reference Bureau rating
If you are planning to take a loan with a bank, it would be important to ensure that you do not have any unpaid debts that are not being serviced. The city council of Nairobi also give lists of those who have arrears with any council repayments like land rents and rates. As the Kenya credit reference bureau grows it will become the reliable way for scoring Kenyans on loans.