Ties between banks and small businesses are set to grow stronger in Kenya with the introduction of the country's first credit bureaus, an important innovation supported by IFC that will help increase access to finance in the country.
IFC has worked with Kenya's government and other stakeholders to draft and publish credit reference bureau regulations, which are scheduled to come into effect in early 2009.
The regulations lay the groundwork for the licensing and establishment of credit bureaus, institutions that will make it easier for Kenyan banks to expand their lending, especially to individuals and small businesses on the fringes of the formal economy.
"Credit bureau operations are vital in building the confidence of the banking sector, and facilitating access to finance for smaller businesses," said Jean Philippe Prosper, IFC Director Eastern and Southern Africa. "The new regulations will provide a framework for a regulated and reliable system of credit information sharing, which should give the banks more confidence to lend to smaller businesses."
The establishment of credit bureaus will mark a major step forward for Kenya's economy by providing the detailed and objective information the country's banks need to expand lending to individuals and small businesses, which often struggle to obtain financing.
An important feature of all modern economies, credit bureaus will also allow Kenyan banks and other financial institutions to reduce loan processing times and cut default rates.
STUDY TOUR
IFC advised the Kenyan government and other stakeholders over a two-year period on the complicated process of developing the new credit reference regulations.
IFC shared best practices on credit referencing and regulations, and also facilitated a study tour to South Africa for officials from Kenya's central bank and ministry of finance. During the study tour, Kenyan officials exchanged views and experiences with a number of established credit bureau practitioners and with South Africa's national regulator.
"IFC has played a major developmental role to ensure that Kenya provides for the establishment of credit reference bureaus," said Kenya Bankers' Association Executive Director, John Wanyela. "IFC's global view has been greatly appreciated."
A PIVOTAL ROLE
Credit bureaus are sometimes unfairly tarred as institutions that make it more difficult for individuals and businesses to secure loans. In fact, credit bureaus play a pivotal role in increasing access to finance, especially in emerging economies where banks often say lending to small businesses is ‘too risky’.
Credit bureaus diminish the risk by providing transparent and detailed information that gives banks and other financial institutions the confidence they need to expand their lending and to make faster loan decisions. The ultimate winners are the myriad of small traders, shopkeepers, farmers, and manufacturers who are able to secure the financing they need to grow their businesses.
IFC's work helping Kenya introduce a credit rating system builds on similar support it has lent to other African countries.
In Ghana, IFC helped with the drafting of a 2007 law, the 'Credit Reporting Act', which requires banks to share information with credit bureaus. In Nigeria, IFC is advising the first bank-sponsored credit bureau on compiling and providing reliable credit information.
The goal of all of these programs is to close the information gap between borrowers and lenders and to help banks expand their lending portfolio, especially to underserved populations.
Core Aims of the IFC Global Credit Bureau Program |
Develop an environment that encourages private sector credit information sharing:
- Help government authorities develop credit information sharing
- Advise on legal and regulatory frameworks
- Host educational and outreach events for lenders, borrowers, and authorities
Give direct support to new private credit bureaus:
- Conduct feasibility studies and assessments
- Provide advisory support in operations and other areas
- Bring international best practice with expert partners to technology, management, and governance
- Work as an “honest broker” in creating consensus among key stakeholders
- Enhance existing credit bureaus
- Assist in the conversion from negative only data sharing to positive information sharing
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For more information contact:
Jason Hopps
Communications Officer
Phone: +2711 731 3120
E-mail: jhopps@ifc.org
