Kenya has started reaping the benefits of financial innovation as it continues to entrench
itself as a global hub of innovation in promoting products that expand access to finance to
millions of its poor. In the latest World Bank report, Doing Business 2010, Kenya is ranked
fourth out of 183 economies in facilitating the ease of accessing credit.

The country’s strong push to enact laws on sharing of credit information ranks it highly
among the top nations where individuals can easily access finance, the report says. This
places it in the same league as developed nations such as Singapore, United States,
Australia, New Zealand and Israel, which are highly regarded when it comes to accessing
credit.

Kenya boosted its profile in areas of regulatory framework related to sharing credit
information “which helps creditors assess the credit worthiness of potential future
clients,” the World Bank says in the report, adding that, “Where collateral laws are
effective and credit registries are present banks are more likely to extend loans.”

This ranking places Prof Njuguna Ndung’u as the foremost central banker in Africa for the
regulatory push that the Central Bank of Kenya has pioneered in deepening the country’s
financial sector.
This has helped draw Kenya’s informal economy into the mainstream, which in the short term
has helped boost national savings. Mobile money has moved $6 billion since it was launched.
The deposits held by Kenyan banks have risen from $8 billion in 2006 to $16 billion in 2010.

Since CBK allowed mobile telephone provider Safaricom to launch its groundbreaking money
transfer service, M-Pesa, nearly nine million Kenyans today have access to mobile banking
services through their mobile phones.

Two weeks ago, CBK allowed Safaricom and Equity Bank to launch an expanded service, M-Kesho,
which will allow people to earn interest on the cash held in their phones as well as enjoy
insurance protected deposits.

The service will allow the poor to build a credit history, a requisite for accessing
micro-loans. The lack of information on a borrower’s credit history was a big challenge to
banks, forcing them to charge high interest rates to shield themselves against increased
possibilities of defaults.

Interest rates ranged from 13 per cent per annum to as high as 20 per cent in some financial
institutions. East Africa’s biggest economy has however moved to put in place laws to
establish credit rating agencies and have players in the banking sector share information —
from July 2010 — on all non-performing loans in their books, including defaulters with the
Deposit Protection Fund, with licensed credit reference bureaus.
“Although a credit history is not a substitute for risk analysis when banks share credit
information, loan officers can access borrower’s creditworthiness using objective measures,”
says the World Bank in its report.

The parameters on measuring the ease of accessing credit, according to the World Bank
survey, had two measureable components. One had to do with how well the collateral and
bankruptcy laws facilitate lending.

The other parameter measured the quality and accessibility of credit information available
through public credit registries and private credit bureaus.“When it comes to credit
information utilisation, once market players see the value, it means we have gone very far,”
said Wachira Ndege, the chief executive officer of the Credit Reference Bureau.

CULLED FROM THE EAST AFRICAN.


 

 

 

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