UNDERSTANDING THE CREDIT REFERENCE BUREAUPosted by: Zipporah Gikonyo On September 05, 2018
UNDERSTANDING THE CREDIT REFERENCE BUREAU
The mention of the word CRB sends a cold chill down your spinal code when you remember a friend’s experience of getting a clearance certificate so as to procure an emergency credit facility. The look of panic on his/ her face when he or she was told that due to an outstanding loan facility in arrears, getting the funds to be credited to his/ her bank account would not be possible.
What is a CRB?
This a firm collecting information from various businesses that have had a financial relationship with you as well as providing consumer credit information on the individuals borrowing and bill paying habits.
Around the world these firms are known by various names: In the US the firms are called credit bureaus, in the United Kingdom, a credit reference agency, while in Kenya it is a credit reference bureau.
Credit Reference Bureau provides information through a central platform accessed by commercial banks, saving and credit co-operative societies (Saccos) and other microfinance institutions to assess the borrowers’ ability to pay back a loan.
Credit Reference Bureaus are regularized by the Central Bank of Kenya.
How does a CRB help Lenders and borrowers?
- Serves as a debt recovery tool. Individuals listed as defaulters in the CRB rarely access new credit facilities without having to pay-off the old debt.
- Reduces the rates of default or bad debts.
- It helps in risk assessment or checking the character of a borrower.
- It locks out serial defaulters who have borrowed from multiple lenders and defaulted.
- Customers with a good reputation or Credit score can easily obtain credit at a lower rate of interest. This is by way of a risk based pricing facilitated by the CRB report.
- The CRB reports instills discipline on borrowers as well as would be borrowers.
- Cultivates a culture of repayment of borrowed funds as it can be very punitive to find your name with an unfavorable rating.
- Reduces chances of over-indebtedness for the customer or lender.
- Run away defaulters are easily traced by lenders.
How does an established Credit Reference Bureau system benefit the economy?
- A more stable and predictable financial sector. The risk of having bad debts is reduces.
- Over indebtedness as well default on the part of the borrowers is levels have reduced.
- Efficiency in financial intermediation is established.
- Increase in private sector lending as the bankers and other financial intermediaries are able to better price their products through risk based pricing.
- Creation of jobs due to increase number of lenders in the economy.
- Improved access to lending as identification of good borrowers is encouraged.
I hope you are now better informed as to what is a Credit Reference Bureau and understand that it is not an enemy but a friend.
To obtain your CRB Report and Clearance certificate here is a step by step guideline.