The Effect of Credit Reference Bureau on Access to Loans in Kenya

Abstract

With the adoption of the CRB regulation in 2008, the banks have been mandated to share credit information with the licensed CRBs in order to set up a database for all borrowers and enable checks and balances in the credit market. A lot of information has been gathered and CRBs are still trying to enlist other sources of information. The purpose of this was to determine the effect of credit reference bureaus on access to loans in Kenya. The study used a descriptive research design where the target population was the 43 registered commercial banks in Kenya. The managers in the finance, strategy and business development were sampled. The study used questionnaires to collect data. The questionnaires were self-administered. The data was analyzed both quantitatively and qualitatively. The study also used regression analysis to determine the relationship between the number of loans awarded and the number of loans applied, the CRB reports and loans denied. The results revealed that the credit information sharing increase in confidence of commercial banks while giving loans unlike before the CRB became operational. The study established that more and more commercial banks and other lending institutions have turned to CRB for credit information to minimize the credit risk. The study however, found that the banks did not use the negative CRB reports as the only basis by which to deny the applicants loans. This was evident when the CRB report was used as much as the loan applications. The results revealed that loans awarded were slightly less than the loans applied. This was however, equal to the number of loans denied. The study recommended that all the lending institutions should adopt the use of CRB report as a means of assessing the credit worthiness of the borrowers thereby minimising the risk of bad debts. The study further recommended that the government and the lending institutions should educate the borrowers of the importance of credit bureaus such as the reduction of the price of borrowing. Lastly, the study recommended that the Government needs to look into what regulatory impediments to licensing of more CRBs that may hinder the sustainability of the reference bureaus in Kenya.