BENEFITS OF A CREDIT REFERENCE BUREAUPosted by: On November 01, 2016
The Role and Benefits of Credit Reference Bureau
CRB A Credit Reference Bureau is a central platform that keeps credit data shared by credit providers. CRBs collect, process information about the credit history of businesses and individuals making it available to both owners and lenders. CRBs uses the information collected to create reports and scores to demonstrate credit worthiness of a customer.
Though they have existed for many years in developed economies, in Kenya the Banking, Credit Reference Bureau Act was enacted in 2008, and operation started in February 2009. The Bureaus were established through the Banking Act to enable banking institutions share customer negative credit data. Currently there are three Reference Bureaus in the country which are Credit Reference Bureau - TransUnion CRB, Metropol Credit Reference Bureau (MCRB) and Creditinfo CRB Kenya. The CRB’s are appointed and regulated by the Central Bank of Kenya.
In 2013 The Banking Act, Credit Reference Bureau Regulation, 2013 was reviewed to accommodate Microfinances, other financial institutions like SACCOs and trade credit providers. The act also allowed full file information allowing all lenders to share both negative and positive information on borrowers for benefit to both lenders and borrowers. .
Roles of the Bureau
- Obtain and receive customer information
- Store, manage, evaluate, update and disseminate customer information
- Generate customer information
- Assess credit worthiness and provide credit scores
Sources of CRB data
- Licensed institutions mandated to report by Central Bank e.g. commercial banks and Deposit Taking microfinances (DTM)
- Public domain sources, e.g. court registries, gazette notice, registrar of persons.
- Approved 3rd Party e.g. Utility companies, Higher Education Loans Board, commercial entities.
- Individual/entities i.e. when requesting for a credit report.
Customer information contained in a Credit Report;
- Customer identity information
- Customer‘s employment information
- Credit history including loans and other credit facilities that the customer has been granted
- Loan securities
- Repayment information – default
- Legal action against the debtor
Benefits of CRB to Lenders and Borrowers
- Recovery tool
- Reduce bad debt/default
- Helps in risk assessment
- Keeping off serial defaulters
- Reputation/character collateral
- Discipline to borrowers
- Embracing of paying culture
- Reduces chances of over-indebtedness
- Better terms for low risk borrowers
- Tracing of defaulters
- Reduction of information asymmetry
Benefits to the Economy
- Financial Sector Stability
- Efficiency in Financial intermediation
- Increase in private sector lending
Credit providers are required to share any of the following data with the Credit Reference Bureau
- Non-performing loans
- Bounced cheques
- Credit defaulters
- Proven cases of frauds and forgeries
- Accounts compulsorily closed
- Tendered false securities
- Misappropriated borrowed funds
Rights of a customer
- Right to receive a copy of your credit report
- Right to a free credit report annually
- Right to sue for damages if someone access your report without your permission
- The right to contest the accuracy or completeness of information in your credit report
Both financial and trade credit providers are allowed to share data with the CRB, but the information shared must be accurate. It is only companies that have shared data with the bureau have the right to access data due to the reciprocity rule that guides the operation of a bureau (you must give to receive). For one to access data about a customer, there must be a written authority signed by the customer authorizing the credit provider to access the data. A credit report of a customer shows previous history on all institutions that have tried to access data on them from the bureau. Chapter Six of the Kenya Constitution requirement benefited the Bureau’s during the last general election of 2013, where all contestants had to go for a credit report which was a requirement by the Independent Election and Boundaries Commission (IEBC). The Public Service Commission also requires persons applying for a job with the Government to provide a credit report, this requirement has seen many disqualified for positions they would otherwise qualify due to a bad credit report. Institutions like Higher Education Loans Board (HELB) have benefited greatly from the bureau after they were allowed to list their defaulters with the CRB’s. Their rate of recovery has been very high and has enabled them to increase their collections greatly. Other utility companies are now following suit and soon persons who default will be locked out of the lending market.
Borrowers with a positive credit history stand to benefit with the bureau, for they can obtain credit by presenting a good credit report even in the absence of collateral. Reputation collaterals will become acceptable with time and good borrowers stand to benefit. CRB therefore plays a vital role in a growing economy and must be embraced by all.