Latest data showing that for every Sh100 being borrowed today, Sh11.4 goes unrepaid paints a picture of a nation whose citizens do not repay their debts. This trend has been blamed for the huge amount of non-performing loans currently standing at Sh277.7 billion.

However, information from the over 35 million records of borrowers at just two of the country’s credit reference bureaus (CRBs), the bulk of which are mobile loans, tells a different story. A closer look at one of the CRBs, TransUnion, which has 9.9 million active unique consumer profiles, shows that positive listings grew from 71 per cent in March 2016 to 88.3 per cent by April this year. This is at odds with the narrative being fronted by banks that the majority of Kenyans are risky borrowers hence the tightening of credit, especially under the rate cap regime.

Apparently, since the introduction of the rate cap, there have been more positive listings by CRBs than defaults, meaning most borrowers are not as risky as claimed by lenders. TransUnion has 6.2 million mobile loans in its records which is essentially 63 per cent of their records, and 3.7 million conventional loans, about 37 per cent. Mobile loans are essentially a reserve of the mass market, an indicator that small borrowers are actually good at paying their debts. On the other hand, negative listings dropped from 29 per cent in March 2016 to 11.7 per cent by April this year.

“Lenders are now sharing information on authorised credit facilities with a performing or non-performing status. This has helped improve their lending decisions as the market gets more sophisticated with the increased appetite for value added services such as credit scoring, early warning system and portfolio monitoring,” said TransUnion Chief Executive Billy Owino. Businesses have also remained relatively loyal to making payments, according to data from Metropol, the biggest CRB with 25 million unique users. Its records show that most of the 250,000 rated small businesses are paying their debts. On a scale of 20 to 90, where below 40 are defaulters and above 70 are good borrowers, the small businesses retained an average rating of 60. Small and medium-sized enterprises (SMEs) are the best borrowers from Savings and Credit Cooperative Organisations (Saccos), according to Metropol’s data, with their average score at 67, which is close to the most liquid businesses. While credit-only microfinance institutions offer quite steep interest rates, businesses borrowing from the sector have also remained loyal in making payments, with an average score of 66 per cent. Those borrowing from microfinance banks, on the other hand, had an average rate of 60 while those taking credit from banks had an average rate of 64.

Metropol Group Managing Director Sam Omukoko said banks lost an opportunity to use the CRB to block bad borrowers in the wake of the rate cap by denying whole sectors credit. “The introduction of the interest rate cap was a response to the inability of banks to price risks. There would never have been a basis to pass a law to cap rates if they could price risk; people would pay differently but all would have access to credit,” he said. Mr Omukoko underscored the importance of credit to an economy, saying it is the reason the American economy is where it is today. Small component In Kenya, credit is such a small component of the total purchases, making the country a cash economy, which limits purchasing power. “Take a situation of the buying population and increase their credit limit by even Sh10,000. Let us assume that the buying population is 20 million people and on average in a month, one person can buy goods worth Sh50,000. Increase that to Sh60,000, how much can they buy? It is huge,” he said. “Credit can expand if you have a good credit history. This is what drives the economy. If we do not build credit economies, we will remain small. That is the value of the score.” Kenya has three CRBs – Transunion, Metropol and CreditInfo Kenya – which have developed from being used to blacklist borrowers to playing a central role in changing the way loan decisions are made. The CRBs’ story started by lenders sharing negative information when the regulations setting them up in 2008 were passed.

Omukoko said at the time, bad loans were quite high, over 18 per cent of the total. They, however, came down to an average of about five per cent in 2013. When banks shared the negative information, the input of the CRB report in the loan appraisal process was to answer the single question – whether one is a defaulter or not. Being listed in a bureau meant you would not access credit. “What we did is that we realised that the CRB was a tool for both risk management and business development. As a risk management tool, it enables you to see the customer’s profile based on his behaviour and judge if this is a good risk or a bad risk,” said Omukoko. However, Kenya was a market of financially excluded people who did not have a credit history, which meant that one could hop from one bank to another taking credit with no intention of repaying.  “So because I have no credit history, I go to bank A, B and C and borrow and they cannot see me, they will only realise I exist when I default,” said the Metropol boss. “We had not solved the problem yet so in 2012, we went back to ask for an amendment to the law to allow banks to share full file information, positive and negative. That is the true credit history; have you borrowed, who have you borrowed from, how many loans do you have, what is the total debt you are carrying and how are you servicing the debts?” Transunion’s Mr Owino said the industry has been engaging with the Central Bank of Kenya (CBK) and the banks over the last 18 months and have been helping the industry to see the need and value of using risk-based pricing to better serve their customers. “We are glad that CBK and the banks have in principle agreed to this as part of the wider effort to review the interest rates caps law,” he said.

“You can be sure that banks are going to adopt individual pricing based on credit history going forward. Consumers will be the winners here,” he said. However, Omukoko said for the credit profiles to be complete, everyone playing in the market needs to share information. “We need a situation where every credit provider shares information, from utility firms such as Kenya Power and Nairobi Water to trading companies that offer goods on credit,” he said. To unlock the potential of SMEs, he said, State initiative such as Uwezo, Youth and Women funds also need to share data with CRBs. Owino said TransUnion is currently working on sourcing better data to enable banks to increase their lending to SMEs. This includes working with Government registries and other sources to get better company data that can help them provide principal linkages, thus giving a better view of an SME through its directors. It will also also develop customised SME scorecards to be used by the banks to lend to this sector.



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