Create more awareness on CRBs and credit scores

Awareness of credit reference bureaus (CRBs), accessing credit reports and knowledge of the cost of borrowing are some of the parameters used by the financial access household survey to gauge our financial literacy.

The proportion of adults reporting that they have heard of CRBs has increased to 42 per cent, up from 30 per cent in 2019. This is a good thing, given the current interest in credit scores as a measure of creditworthiness that is also used in risk-based pricing of loans.

Oddly though, the 2021 FinAccess Household Survey found the proportion of adults who have heard of CRBs and tried to access a credit report has declined from 23 per cent in 2019 to 19 per cent in 2021. 

Everyone is entitled to one free credit report per year. They are available via phone. That we are not picking them up suggests that Kenyans are unaware or have yet to experience the benefits of the CRB mechanism. Worse, it could be a backlash driven by the negative sentiment about credit reporting.

Kenya has three fully-fledged CRBs. In operation since 2010, the bureaus are gradually extending sources of data beyond the licensed financial institutions. 

The Central Bank of Kenya (CBK) reports that by June this year, it had approved more than 2,000 third-party credit information providers to partner with the CRBs. These include 1,360 non-deposit-taking saccos, 647 trade sources, 54 insurance companies, 10 development finance institutions, three parastatals, one university and one community-based organisation (CBO).

This is great news for consumers. By enhancing their databases, CRBs are able to provide a more complete and comprehensive credit history. That is, your scores will be better because more likely than not, you do pay your sacco loan or for goods and services such as water and electricity, that you have obtained on credit.

Cost of borrowing 

A good credit score should lower your cost of borrowing and vice versa. It is logical then to compare peoples’ awareness of CRBs and their knowledge of the cost of credit. These data are available in the FinAccess County Perspective report released earlier this month. 

As can be expected, there are significant disparities among counties. Whereas two-thirds or more people in Nairobi, Bomet, Siaya, Kericho and Nyandarua say they are aware of the cost of credit, only less than a quarter of their counterparts in Garissa, Wajir, Mandera and Marsabit say the same. And less than 10 per cent of the citizens in the latter four counties are aware of CRBs.

What does all this mean? For starters, more work by CBK to promote public awareness of credit information sharing and its purpose. If only one in five of us has tried to access our credit score, then it is not influencing our credit behaviour. In addition, we are at a disadvantage in negotiating the cost of borrowing!

While at it, the regulator must build our confidence in the whole mechanism. Can it be truly shown that good credit scores are resulting in a lower cost of credit?

The approval of third-party providers of credit information is a great step. But in a country with 7.4 million micro, small and medium-sized businesses, 647 is too tiny a sample for trade credit!

@NdirituMuriithi is an economist