With the Credit Information Sharing (CIS) mechanism in place, the link between access to credit and a country’s economic development has become more proficient, allowing a wider cross-section of the population to access credit, particularly those without access to tangible collateral.
CIS is a process in which credit providers such as banks, microfinance institutions, and SACCOs exchange information on outstanding loans and advances through licensed Credit Reference Bureaus (CRBs).
CRBs use full-file information sharing to evaluate a borrower’s credit risk rather than placing them on a blacklist.
Regarding the CIS mechanism, borrowers do, however, enjoy a number of advantages.
How to Use a Credit Report
Lenders can more easily separate themselves from repeat defaulters thanks to a credit report, protecting their good name.
Customers can now more easily negotiate lending arrangements based on their solid repayment history.
Less reliance on tangible collateral
CRBs provide credit reports as proof of good performance, which can result in a variety of favorable terms, including reduced borrowing costs, flexible payback schedules, and less dependency on real estate like buildings and land.
Faster Processing of Loans
Credit report generated by CRBs is accessible online to credit providers, which means less paperwork for the consumer and quicker loan processing.
It is no longer necessary to hire outside investigators to verify the loan applicant’s information. The search costs—which are related to this—will no longer be borne by the borrower.
By facilitating the portability of credit records, consumers can more readily switch between credit issuers, leveraging market competition to negotiate better terms on loans.
Benefits of CIS for a lender
A customer’s credit history is provided by CRBs in a single document known as a credit report thanks to the procedure in place.
Credit report providers can analyze a customer’s credit or loan application more quickly and effectively, ensuring that every applicant is treated fairly and impartially.
It has made it possible to obtain more trustworthy data for improved decision-making and has assisted in lowering bad debt and exposure to high-risk accounts.
In addition to a rise in the volume of accounts, credit officers use the framework to concentrate more on cross-selling other items.
The Credit Reference Bureau (Regulations) 2020 dictate that all institutions that have been granted permission by the Central Bank of Kenya (CBK) to exchange credit information with CRBs share the entire file with all licensed CRBs. Every day and every month, this data is electronically submitted.