Sharing of  information about borrowers and their repayment habits has a significant impact on efficiency and expansion of the credit markets. Speaking at the launch of the second phase of the Credit Information Sharing (CIS) project, Central Bank of Kenya  Governor Njuguna Ndung'u said research has been conducted on the economic impact of information sharing in consumer credit markets.

Ndung'u noted that the broad and consistent conclusions of the research point towards greater financial inclusion, access to credit and improved lending performance. He says enhanced financial access arises whenever information collateral is built into credit decisions.

Ndung'u notes that this results  to fewer mistakes by lenders, less default by borrowers and appropriate pricing of credit. He said that partnership between CBK and the Kenya Bankers Association in the CIS project has given tremendous results. Two credit reference bureaus have been licensed as a result and there is active engagement with all commercial banks and the Deposit Protection Fund in exchange of information on Non-Performing Loans.

A total of 1,306,439 and 6,041 credit reports have so far been accessed by banks and bank customers respectively from the two licensed credit reference bureaus. This translates to a monthly average of 76,849 and 355 credit reports for banks and bank customers respectively. Ndung'u views this uptake of credit referencing as encouraging and that it  will be a pillar of growth in the Kenyan financial sector.

He however noted that there are several challenges that the CIS mechanism has brought. These challenges include limitation to commercial banks and in a small extend Deposit Taking Microfinance Institutions. He says if this trend persists, various credit providers may create “silo” databases, often referred to as “segmented” information sharing. Credit reports generated by such systems give an incomplete and often misleading picture.

Source; Central Bank of Kenya

The broad and consistent conclusions point towards (1) greater financial inclusion, (2) access to credit and (3) improved lending performance. Enhanced financial access arises whenever information collateral is built into credit decisions. The outcome is: fewer mistakes by lenders; less default by borrowers and appropriate pricing of credit.