The Effects of Credit Reference Bureaus on the Cost of Credit Among Commercial Banks in Kenya

Abstract

Credit risk management has always been a central issue in successful commercial bank management. Loan delinquencies arise due to debt default. The study sought to determine effects of CRB firms on the cost of credit among commercial banks in Kenya. This study adopted longitudinal design which is one in which multiple observations are made over time to establish a trend. The population consisted of all the 44 lending institutions operating in Kenya. Secondary data was used from banks‟ annual reports, the general business publications, reports from different financial institutions and the central bank‟s annual supervisory reports. Correlations of the independent and dependent variables will be analyzed to identify the direction of the relationship between the variables under study. This was followed by analysis where both descriptive and inferential statistics will be used. The findings will be presented by means, standard deviations, tables and figures. Statistically significant association exists between annual inflation and the cost of borrowing among financial institutions in Kenya. Interest charged on deposits affect cost borrowing among lending institutions in Kenya. Interests on T-bills also affect the cost of borrowing among lending institutions in Kenya. Statistical association was established between annual CBR and cost of borrowing among lending institutions in Kenya. Furthermore, CRB affects the cost of borrowing among lending institutions in Kenya. Central Bank of Kenya should put in place sound monetary and fiscal policies that stabilize inflationary pressure within the country. This will keep the inflation rates stable and therefore making the cost of credit affordable. The study also recommends that lending institutions in Kenya should offer affordable interest rates on customer deposits. There should be minimal discrepancies between interest charged on deposits and interest on loans advanced to customers by lending institutions in Kenya. Central Bank of Kenya should supervise and regulate the interest on T-bills charged by lending institutions on short term credit. The study further recommends that the national treasury in connection with the central bank should fully operationalise the credit reference bureau mechanisms. Sound policies ought to be set in place to guide the functioning of the CRB in Kenya