Stakeholder Perception of Credit Reference Service in the Kenya Credit Market

Abstract

The Kenya credit market is characterized by high level of default tendencies resulting to huge non-performing loans. High figures have continuously been posted for write-off despite efforts by organizations to review and refine their lending rules. Banks, utility companies, microfinance institutions, hire purchase firms, credit card firms, higher education loans board and saccos have all fallen prey to defaulters. Defaulters have managed to move from one lender to another leaving a trail of unpaid debt obligations due to the fact that a mechanism for default information sharing has been lacking. The risk-borrowers have taken advantage of this gap (information asymmetry) to create multiple bad debts in the credit market.In 2007 The Banking (Credit Reference Bureaus) Act was enacted to compel the banks to share default information through licensed Credit Reference Bureaus. Whereas the Banking sector is leaping massively from the service, other players in the credit market have not benefited much because they have not fully embraced the service. This study aims to find out the perception of all stakeholders in the credit market towards Credit Reference Bureau services and the extent to which they embrace the service. Stratified disproportionate random sampling was carried out from 5 strata and a sample size of 70 samples drawn and data collected in the Nairobi region. The findings of the study indicated that there is appositive relationship between perception and the degree of embracing the credit reference services by the stakeholders. This study will be helpful to all players in the credit market in formulating policies that will help in establishing an all inclusive compliance to default information sharing by all credit grantors. When all the players are compelled to share the default information, the perception and degree of embracing the service will be high and the end benefit is that default tendencies will be reduced, the amount of bad debts will be reduced and the credit market will record quality and healthy lending devoid of non-performing loans and bad debts thereby stabilizing the credit market