Central Bank has began reviewing the current credit reference framework in line with a presidential directive which seeks to open up the credit market by allowing defaulters to access loans.
In his inaugural speech after taking the oath of office on September 13, President William Ruto termed the current Credit Information Sharing (CIS) framework as punitive saying it was one of the reasons businesses and individuals can’t access loans.
But in a statement on Thursday, CBK said it was taking concrete actions to address this bottleneck and strengthen the CIS framework.
"First, CBK has mandated all Credit Reference Bureaus to include a 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."
A credit score refers to a rating a borrower gets based on how efficient he or she is on repaying loans.
Those who pay within agreed periods attain high credit scores while those who default are ranked lowly or blacklisted.
CBK stated that it is further working with CRBs to align their credit scoring models to best practices for purposes of enhancing the quality of their credit reports.
It added that it is also working closely with banks on risk-based credit pricing to allow borrowers, particularly micro, small and medium-sized enterprises (MSMEs) to access appropriately priced credit.
"In this context, banks are required to consider the credit score of a borrower in addition to other factors in making a lending decision," CBK said.
Currently, riskier borrowers can obtain loans but at relatively higher interest rates.
But despite CBK's proposal for its use, banks have been cautious at issuing loans on the risk-based lending model due to inability to use the credit reporting system.
They said they lack necessary additional non-banking data to accurately estimate a client’s risk profile to determine their capacity to repay a loan.
CBK urged borrowers to honour their payment obligations to build a good credit history which will enable them access loans at better rates based on their payment behaviour.
The bank advised borrowers to engage their lenders should they encounter challenges in servicing their loans and periodically review their credit score reports to ensure they are accurate.
"We remind the public that they are entitled to one free credit report per year," CBK said.
In September last year, the government prohibited the blacklisting of borrowers with loans below Sh5 million by CRBs for a year as one of the Covid-19 stimulus measures introduced to cushion borrowers.
