CENTRAL BANK OF KENYA
Address on
“CREDIT INFORMATION SHARING TO ENHANCE FINANCIAL
SECTOR DEVELOPMENT”
by
PROF. NJUGUNA NDUNG’U
GOVERNOR
Hilton Hotel, Nairobi
August 27, 2009

Governor’s Address during the Launch of the Banking Credit Information Sharing Implementation Project, August 27, 2009
Mr. Martin Oduor-Otieno, Chairman, Kenya Bankers Association;
Mr. John Wanyela, Executive Director, Kenya Bankers Association;
Chief Executives of Commercial Banks here present;
Distinguished Guests;
Ladies and Gentlemen:
I am pleased to join you this morning on this important occasion to launch the
Banking Credit Information Sharing Project. Allow me therefore to extend my
gratitude to the Kenya Bankers Association for facilitating this project and the
invitation. The importance of this function cannot be overemphasised and I am
delighted at the excellent turnout of the banking fraternity.
The Banking (Credit Reference Bureau) Regulations 2008 were published in July
2008 and launched at this very venue in September 2008. The Regulations paved
the way for the licensing and surveillance of Credit Reference Bureaus (CRB) by
the Central Bank of Kenya. These Bureaus will collate credit information from
institutions licensed under the Banking Act. I am pleased to report that since the
Regulations became operational in February 2009, there has been considerable
interest by potential investors. I do believe that interest is for those who cherish
the importance of the development of information capital.
The Central Bank has so far received three applications for CRB licenses, two
from local investors (Credit Reference Bureau Africa and Metropol) and one from
a South African based regional player - Compuscan. Accordingly the Central
Bank has this week issued a letter of intent to the first applicant, Credit Reference
Bureau Africa. This is an approval in principle to conduct credit reference bureau
business. The Bureau will commence operations on completion of an independent
third party system and security audit and an onsite inspection by CBK. The letter
of intent was granted after a detailed due diligence of the application to ensure all
statutory and prudential requirements were met. The Central Bank wishes to
reassure Kenyans that it shall rigorously assess all applications to ensure the
integrity of the envisaged credit information sharing mechanism.

Governor’s Address during the Launch of the Banking Credit Information Sharing Implementation Project, August 27, 2009
Ladies and Gentlemen: The launch of this project today by the banking sector
is therefore very timely. The overarching objective of the project is to co-ordinate
the efforts of all players so as to build a sustainable and holistic information
sharing mechanism. The Central Bank renders its full support to this project and
we expect that all banks will also commit to implementing all the agreed
milestones.
Credit information sharing offers Kenya an opportunity to promote access to
affordable credit to more Kenyans because information lowers the risk premium
and search costs. There is indeed a clear and direct linkage between access to
credit and economic development. Allow me to highlight four key benefits that the
Central Bank sees accruing from this initiative.
First, credit information sharing will facilitate the development of information
capital. The risk premium associated with information asymmetry and search costs
will decline. Second, information capital will change the current collateral
technology. Credit by the banking sector in Kenya has to a large extent been
underwritten by physical collateral such as land. Borrowers without access to such
collateral have been constrained in accessing credit. Credit information sharing
will enable borrowers build a track record that can be used in accessing credit.
This will be especially pertinent to those borrowers in the informal and Small and
Medium Enterprises (SMEs) who have a track record and good performance to
use it to access credit. The SME sector is very important to the industrial
development of this country and the Vision 2030.
Ladies and Gentlemen: The third benefit is to enhance information symmetry
and support financial development. The existing state of information asymmetry
between borrowers and banks is a constraint to innovation. Two important
outcomes in information asymmetry: moral hazard problems from the borrowers
and adverse selection from the banks. These two problems could punish the
economy with low provision of credit. We have also seen that there is adverse
selection among banks as well.
Fourth, in a segmented market like ours, some segments remain untapped
because banks do not have adequate information to price suitable products. In
part this has also contributed to the high cost of credit. Borrowers have had to
bear a “risk premium” because of this lack of information. It is therefore the

Governor’s Address during the Launch of the Banking Credit Information Sharing Implementation Project, August 27, 2009
Central Bank’s expectation that savings arising from the increased credit
information shall translate to lower cost of credit. In turn, more Kenyans will be
able to access credit from banks.
The current level of interest rates is a combination of costs (like information search
costs), risk premium and of course banks’ profit margin. High interest rates also
give rise to default risks. The risk premium and search costs can be minimized by
information symmetry and reduce Non-Performing Loans. As you will recall the
Kenyan banking sector was saddled with a huge non performing loan portfolio in
the 1980s and 1990s. Part of the burden was occasioned by “serial defaulters”
and inadequate incentives to have a good credit history. The days of “serial
defaulters” are definitely numbered with the advent of credit information sharing.
More importantly, we expect that there will be incentives for good credit
behaviour that will attract competitive pricing of credit facilities. The message to
Kenyans is that now more than ever before, there will certainly be benefits
accruing from adhering to the contractual terms of loans. I am sure the other
institutions in Kenya will deal with appropriate definition of property rights and
contract enforcements to further reduce the risk premium.
Ladies and Gentlemen: In a nutshell, credit information sharing will increase
vibrancy in the market for the borrowers and lenders. Borrowers will be able to
access enhanced facilities as they grow their credit histories and track record.
Conversely credit providers will be able to develop new and competitive products
that will tap into previously unserved and underserved market niches with the
power of available information. This can only impact positively on the banking
sector and the Kenyan economy as a whole.
As I draw to a close, let me recognize that the banking sector credit information
sharing initiative will serve as a model for other credit providers. We must move
with speed to have the mechanism up and running and begin to rope in other
financial and non financial credit providers. This will allow the full benefits of
credit information sharing to the whole economy. I therefore urge all banks to
support this initiative which the Central Bank is unreservedly committed to.
It is now my distinguished duty to officially launch the Banking Credit Information
Sharing Implementation Project.
Thank You