CBK reviews credit scores system to support MSMEs
The Central Bank of Kenya is reviewing the country’s credit information-sharing systems to enhance consumer protection.
The Central Bank of Kenya (CBK) is reviewing the country’s credit information sharing (CIS) systems to enhance consumer protection, the International Finance Corporation (IFC) said in a disclosure.
The private sector leaning arm of the World Bank said the initiative is aimed at assisting the stabilisation and recovery phases of the financial sector in Kenya from the impact of the Covid-19 pandemic by enhancing the credit information sharing environment.
“The project will be organised across three main components: supporting the CIS mechanism, risk-based pricing (RBP), and micro-small and medium enterprises (MSME) support. IFC will support the Central Bank of Kenya to strengthen credit reporting supervision, and in their efforts to enhance lending policies and protect customers,” the IFC said.
“This project also supports the private sector through technical assistance to financial institutions such as banks to improve their internal rating models as a key component of compliance and risk-based pricing of credit. Support will also be provided to the Credit Reference Bureaus on opportunities to provide additional credit scores targeting MSMEs, usage of alternative data in credit scoring, and awareness to borrowers on consumer protection practices” it added.
CIS is a process where credit providers such as banks, microfinance institutions, and saccos exchange information on their outstanding loans and advances through CBK licensed Credit Reference Bureaus (CRBs).
Through CIS, lenders access reports from the CRB which informs them about the repayment patterns of a borrower.
The CBK in November said despite the recent improvements in the CIS framework, some concerns persist about its use.
“This relates largely to the use of adverse credit reports issued by Credit Reference Bureaus (CRBs), which are viewed as being used to deny borrowers credit (“blacklisting”). The Central Bank of Kenya (CBK) remains concerned about this perception and is taking concrete actions to address it and strengthen the CIS framework,” the apex bank said.
The concern by the CBK came even as it ordered all CRBs to include a standard statement at the top of every credit report indicating that a customer’s credit score should not be used as the sole reason by a lender to deny a customer a loan.
