Let’s improve information sharing for a more vibrant credit market

A good thing can be made better. And there is no doubt that credit information sharing is a work in progress.

There are five ways in which it can be improved: Shorten the duration of holding negative data, use alternative dispute resolution, allow more data sources, extend the use of scoring tools and provide better information to customers. Let’s examine these.

The regulator should allow a reduction of the period over which bureaus hold negative data from five to two years.

This would take care of the misplaced view that bureaus blacklist borrowers and improve market confidence that the scores are not weighted down by the negative data. In any case, data should be regularly cleaned up.

For instance, accounts get overdrawn by bank charges. You may have a low balance in an account because your source of income has dried up or you are multi-banked.

But since bank charges apply monthly, your account ends up being overdrawn. If treated as though you obtained credit, it can show up as a default.

The sensible thing is for banks to stop applying charges on accounts with zero balances. 

As a matter of fact, this predatory behaviour of demanding a minimum balance is what drove thousands from multinational banks to Equity, Co-op and KCB. 

In case of disputes, such as on bank charges, customers and lenders should make use of Tatua Centre – the alternative dispute resolution mechanism.

The centre is a product of the Credit Information Sharing Association of Kenya (CIS Kenya). 

A fuller picture

The regulator must also overcome the phobia of data from outside regulated banks. 

Firstly, the regulation does not make the data superior to that from other sources. In any case, water, power, and phone companies are all regulated.

Incorporating these sources gives a fuller picture, not just the limited times when a customer has been able to obtain bank credit.

Customer segmentation and lending to micro and small businesses promise the most returns for lenders who use credit scores properly.

Lenders can determine which customer is good for which product using scoring tools. This would also bring down the cost of selling.

And as Fuliza has proven, the bottom of the pyramid is extremely profitable if you have the right tools.

Credit rating is not to be confused with scoring. Both speak to creditworthiness, but the former uses financial analysis of audited accounts, industry and country data, assessment of management teams and so on.

Scoring uses statistical techniques to examine a few data points that have predictive value.

Customers often ask how they can improve their scores. Vigilance is useful.

For instance, if you have a dormant bank account that attracts monthly charges, consider closing it. But by far allowing consumer data has the highest advantage.

At 12 years, licensed credit information sharing is still relatively new. The CRBs and CIS Kenya are investing in knowledge generation and sharing for lenders and customers. It is to them we should turn for help.

@NdirituMuriithi is an economist