Credit rating system might be much better

In Summary

• In his Kasarani speech, President Ruto proposed introducing a credit rating system to rank borrowers

• The present CRB system is more binary and tends to sometimes lock out borrowers unnecessarily

President William Ruto has promised to reform the Credit Reference Bureau system.

The present system is 'binary' and just says Yes or No in case someone has failed to repay a loan.

Ruto is proposing a 'credit rating' system where every individual gets a score indicating how trustworthy they are.

People will still be able to borrow but the costs will fluctuate depending on the strength of their credit rating. A person with a good track record will pay less than someone with a poor borrowing history.

This system is similar to the USA and UK where one can go online to find out one's credit rating. You can improve your credit rating by consolidating all borrowing into one loan or credit card and then keeping up to date with payments on that new facility.

There have been dire warnings that the new credit rating system might exclude weaker borrowers from the banking system. But the opposite is true.

This more nuanced ranking provided by the credit rating system should make it easier for banks to cost the risks involved in lending and thereby make it more likely that they will be willing to lend to Kenyans.

Quote of the day: "The lion is, however, rarely heard - much more seldom seen."

John Hanning Speke
The English explorer of East Africa died on September 15, 1864

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