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Credit rating uptake on the rise as lenders adopt risk-based lending mechanism

Sam Omukoko; business ratings to boost investor confidence for long term financing

Credit rating uptake in Kenya has been on the rise as more lenders gradually adopt the risk-based lending mechanism.

According to the Credit Reference Bureau (CRB) Regulation 2020, lenders are mandated to use a customer’s credit score when appraising a credit application and in determining the interest rate to charge.

Speaking during a Webinar attended by over 200 business people on Medium, Small and Micro Enterprises (MSME) Access to Credit, Metropol CRB General Managing Director Sam Omkoko urged the lenders and borrowers to use CRB ratings, a quantitative assessment of the cash flows of a business entity that determines the financial strength of servicing a financial obligation.

According to Omukoko, credit scores are updated every time new information is added to the borrowers’ profile.

“When an SME has a full credit report, some of the information that banks would be looking for to appraise the credit application would already be in the credit report,” said Omukoko.

With CRBs being reliable institutions to banks in terms of assessing credit risk for borrower, they rely on credit reports to avail credit worthiness to businesses.

“Banks now are relying on credit reports to evaluate credit worthiness of any business. There has been progression from just using credit report to now using credit scores because,” he added.

Credit rating has also fastened the processing of loans as some loans can now be provided online based on the credit scores and credit limits. Entrepreneurs on the other hand can use the analysis to improve their businesses.

Metropol CRB held a credit rating pilot in collaboration with Equity Bank in Nakuru early this month where 600 businesses were rated out of which 40 percent were given credit based on ratings only.

Credit scores vary from 200-900. Any score below 400 would indicate an account that is having problems in servicing it’s loans while any scores above 750 would indicate an account that is servicing its debts very well.

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Scores between 400-750 are average scores.

“Where a credit score exists decisions can be automated based on assigning limits that correspond to each credit score.”

Also in attendance was the International Trade Centre Senior Advisor Ian Sayers, who urged the small and medium sized enterprises to use the MSME Financing Gateway platform, a facility that lists sources of financing, business support organizations and advisers.

“This is designed to be equally useful for financing business development services providers and how it helps you is that it should improve your conversion rates you should be getting inquiries through the platform from enterprises that have already listed your services looking at it as it matches your needs” said Sayers.

The platform was developed with the financial support of the European Union-funded East African Community Market Access Upgrade Program (MARKUP) and is hosted in Kenya by Kenya Private Sector Alliance (KEPSA).

Metropol CRB has so far rated over 600 businesses and a number of large corporations that can use the ratings to negotiate for the appropriate interest rates that fit their profiles, as credit rating in Kenya now begin to take shape.

(Edited by Lawrence Baraza)

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