JOSHUA OIGARA: Responsible Lending is What Kenya Needs to Realise Economic Ambitions

Customers queue for service at the Kenya Commercial Bank Moi Avenue branch in Nairobi / File
Customers queue for service at the Kenya Commercial Bank Moi Avenue branch in Nairobi / File

For most people, a personal loan represents an opportunity for a better life. For some, that aspiration is realised through a home mortgage and for others a loan for school fees is the key to unlocking life’s opportunities.

Whatever the vision of progress might be, the eventual commitment to repay a loan is anchored on the premise of continuous personal growth. But life, it said, happens. The chances of a default for one reason or another is a reality all borrowers live with.

On the list of words more likely to be mentioned by defaulters are: “I Promise”, “Please Help” and “Give me a Chance”.

Statistics actually show that someone promising to pay is less likely to pay than someone who doesn’t explicitly promise. On the other hand, confident borrowers are synonymous with words like job promotions, graduate school and other aspirations are more likely to pay back their loans.

How consumers relate to borrowing and debt, and how financial institutions can respond to those basic borrowing needs has become more vital than ever.

Interestingly, emotional and financial considerations are linked inextricably in the borrowing process. When people borrow money, the words they use can foretell whether they will pay it back.

And by analysing the accounts borrowers give and the identities they construct, bankers can predict whether borrowers will pay back the loan above and beyond more objective factors like their credit history.

Generally, predicting loan default is often a difficult task because loans are repaid over a lengthy period of time, during which unforeseen circumstances may arise.

The onus, therefore, is on banks to carry out due diligence to ensure that they do extend credit to borrowers who would be able to repay, but also not to those who are not able to meet their credit obligations at the slight instance of financial trouble.


Conventionally, the credit assessment process for lenders was aimed at avoiding losses to banks. Initially, this was done by way of ensuring there was sufficient equity in any security so that moneys lent could be recovered in circumstances of default. Today, due to innovation, lenders look at the credit assessment process in terms of capacity of the borrower to repay the amount lent from their own resources rather than realisation of any security, which has given rise to unsecured loans.

With responsible lending, we are agitating for a paradigm shift where credit assessment procedures are no longer about protecting the position of the lender but instead is about protecting the borrowers from financial commitments they can’t afford to meet. It’d be about saving borrowers from themselves.

As banks are in the centre of the economy, their lending activities have to align more with the economy. Banks have the moral obligation, and responsibility to ensure that borrowers not only commit to meet their obligations, but that they are comfortable paying down the track.

Globally, several countries have started on this journey of financial protection and are enacting responsible and sustainable lending laws. Responsible lending has become increasingly more topical today, especially under the IFRS 9 regime that tightens the lending environment.

Locally, with the tighter lending environment occasioned by the impact of interest rates regulation, responsible lending is a good response not only to borrowers, but also to banks and ultimately the economy.

In assessing risks, banks must be responsible for verifying borrowers’ income in all circumstances, having a detailed understanding of expenditure, assessing future affordability and conducting affordability assessments on guarantors.

At KCB Group, responsible banking and sustainability are integral to how we undertake lending across all our business both in Kenya and in our subsidiaries. As a policy, we do carefully evaluate all loan applications to gain an understanding of a personal or business customer’s financial situation. As such, in all our credit decisions, we are committed to acting in the best long-term interests of a sustainable financial sector by protecting borrowers.

Additionally, the ongoing development of the UNEP FI International Banking Principles for Responsible Banking will see the alignment of standard and sustainable banking practices.

KCB Group Plc has joined hands with 28 other global banks — with a combined asset base of $17 trillion to adopt six new guidelines that were unveiled in Paris, France, on November 26 this year.


The Principles — Alignment, Impact, Customers and Clients, Stakeholders, Governance and Culture, Transparency and Accountability — will enable all signatory banks to progressively and proactively embrace, integrate and execute their mandate with clear deliverables over the short-, medium- and long-term plans within their business.

We believe that the principles will also allow banks to take responsibility for their actions and, over time, build trust and market confidence with our stakeholders, which is good for business sustenance.

We believe that through these principles, banks will be able to align r business strategies with customers’ needs and society’s goals in line with the Sustainable Development Goals. Innovative products and services that target certain populations (e.g. women) or that encourage purchase of green products (e.g. green credit cards) greatly promoting sustainable practices.

Banks play key roles and therefore as financial intermediaries, we enable economic activities creating shared prosperity for current and future generations, empowering individuals to build better futures.

Enhanced transparency is essential. When extending credits to a customer, banks are mandated by the Consumer Protection Act to explicitly explain to borrowers the breadth of the commitment, so they understand the risks they are taking.

This entails fairness and pre-contractual disclosure practices that highlights all fees, liabilities or obligations. We will always try to offer credit facilities appropriate to the needs and financial capacity of the borrowers and also go an extra mile to make sure that they fully understand their obligations in as far as the facility goes.

The journey to responsible lending is not an easy one, but a strategic approach and commitment to change will augment and regenerate the banking sector, to enable the industry to better play its part in driving economic growth.