How CIS mechanism works in the credit market
The excitement around financial inclusion in Kenya is not without merit owing to innovative aspects of Fintechs and banks.
This has seen the birth of Fuliza and M-shwari through new value propositions, including flexible products and better ways to address the financial challenges faced by low-income customers.
Despite this milestone, the majority are still failing to meet their repayment obligations with reports indicating that only two out of 10 borrowers meet their obligations.
This failure mirrors the high cost of credit in a competitive market with the new regime under President William Ruto trying to intervene following the public outcry over the grossly misconstrued word “blacklisting.” But do Credit Reference Bureaus (CRBs) blacklist defaulters?
What is Credit Information Sharing (CIS)
According to Mercy Nehema – Metropol CRB General Manager, CRBs don’t blacklist a borrower but rather use full-file information sharing to assess a borrower’s credit risk.
This is enabled through the Credit Information Sharing (CIS) mechanism which came into force in 2010 when it was established as a Self-Regulatory Organisation (SRO) to address the barriers between potential and risky borrowers.
The CIS mechanism has, however, been misinterpreted for blacklisting among debt-ridden Kenyans who feel targeted when they are denied credit by lenders who refer them to CRBs.
The promulgation of CRB Regulations, 2013, gave a window for full-file information sharing at a time when only negative data on a borrower was being shared, devising, the biting notion, blacklisting.
The Regulations placed mandatory requirements on the CBK’s licensed lending institutions to submit data to all bureaus.
Globally, there’s been a dedicated credit information regulation for the past two decades as opposed to the European Union-based data protection frameworks – according to the National Treasury report on the CIS mechanism.
Kenya, however, enjoys these two frameworks with dedicated CRB regulations and the Data Protection Act, 2021. It is because of these regulatory milestones that Kenya now boasts of 83.7 percent financial inclusion as of 2021 from 82.9 percent in 2019, according to the 2021 Survey by Fin – Access Survey Report conducted by the CBK.
This mechanism has witnessed a record 15.8 million records shared with the Credit sharing mechanism with 12.6 million records showing no default status, and approximately 3.9 million with at least one default entry on their credit record.
The World Bank defines financial deepening as means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.