Njuguna Ndung'u: Promoting access to affordable credit in Kenya
Remarks by Professor Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the
launch of the Strategic Plan for the Association of Kenya Credit Providers (AKCP), Nairobi,
27 October 2014.
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Mr. Charles Ringera, Chairman, Association of Kenya Credit Providers;
Mr. Habil Olaka, Chief Executive Officer, Kenya Bankers Association;
Mr. Benjamin Nkungi, Chief Executive Officer, Association of Microfinance Institutions
of Kenya;
Association of Kenya Credit Providers Governing Council Members;
Chief Executive Officers of Credit Reference Bureaus, Commercial Banks,
Microfinance Banks and Development Finance Institutions;
Representatives of IFC, FSD Kenya and USAID FIRM;
Members of the Press;
Distinguished Ladies and Gentlemen;
Good morning...
It is my honour and pleasure to join you this morning to launch the Association of Kenya
Credit Providers (AKCP's) 2015-2019 Strategic Plan. As you may recall, almost exactly one
year ago, AKCP was officially launched in this same room. Today marks the start of AKCP's
concrete journey of providing a solid platform through which all credit providers in Kenya can
actively engage in the pursuit of a comprehensive and all-embracing credit information
sharing mechanism.
Ladies and Gentlemen: The success of any entity depends on its strategic orientation. I
applaud AKCP for moving with speed to develop a five year strategic plan that maps out its
priority focus over the period. The main mandate of AKCP is to promote the development of
an effective functioning Credit Information Sharing (CIS) mechanism in Kenya. I note with
appreciation that the strategic priorities identified for the five years including: Institution
Building, Legal Reform, Capacity Building, Communication & Awareness and Knowledge
Generation, are all relevant for AKCP to kick-start the process of strengthening the CIS
mechanism in Kenya. This has well defined its place in the financial ecosystem in Kenya as
well its viability and sustainability.
Ladies and Gentlemen: The rate of a country's economic growth is driven by investments
and these investments are largely dependent on the ease with which productive enterprises
access funding to transform their viable ideas and opportunities into productive ventures.
That is why I am proud to be associated with AKCP's tag line: "Towards a more open
credit market" because with more transparent credit markets, investors are able to easily
access affordable funding. As a result of implementation of several innovative initiatives and
reforms in Kenya's financial sector including introduction of the CIS mechanism, the sector
has recorded improved efficiency. Similarly, formal financial inclusion has been on an upward
trend from 26.4% in 2006 to 66.7% in 2013. Consequently, financial stability has been
strengthened through the enhanced credit risk management systems as well as the improved
economic conditions.
Despite this progress, the current level of private sector credit in Kenya of about 40% of
Gross Domestic Product is still far below the levels recorded in comparable emerging
economies such as Malaysia, South Africa and Mauritius. The main factor cited as impeding
private sector credit in Kenya is high lending rates, that can be dealt with through concerted
efforts of all players in the sector. With AKCP bringing together several categories of credit
providers, its voice on this issue and the technology to provide sustainable solutions should
be loud enough.
Ladies and Gentlemen: As you may be aware, a high level Committee was established
under the leadership of the Cabinet Secretary to the National Treasury in January 2014 to
explore ways of increasing the supply private sector credit and mortgage finance in Kenya.
The main focus of the committee was to make proposals for transparent pricing that should
allow competition and movements in the market and thus lower lending rates commensurate
to returns on investments as well as reduce the risk profile and premium loaded to market
participants.
The committee finalized its task in April 2014. Among the recommendations made by the
committee was the introduction of a transparent pricing mechanism, where all banks price
their loans based on a common reference rate, the Kenya Banks' Reference Rate (KBRR).
KBRR became effective on 8th July 2014 and borrowers are now able to compare lending
rates across banks. Prior to this, every bank had its own base rate, whose composition was
not known to the borrowers and so not comparable.
Banks are now required to explain to their customers and the Central Bank the composition
of the premium (k) they charge above the KBRR. The Central Bank will shortly start to
periodically publish, on its website, the details of the premiums (k) obtained through returns
from banks. This will promote transparency and competition in the pricing of credit. This is
one of the avenues of increasing credit to the productive and profitable sectors of our
economy.
Ladies and Gentlemen: Credit Information Sharing (CIS) plays a critical role in enhancing
credit to the private sector. It enables credit providers to undertake effective credit risk
assessment based on the available credit histories whereas the borrowers are able to
negotiate for better credit terms based on their good credit histories. Since the rollout of the
CIS mechanism in 2010, commercial banks and microfinance banks had requested more
than 4.8 million credit reports from the two licensed credit reference bureaus as at
30th September 2014. The borrowers have on the other hand accessed 77,422 credit reports
over the same period. As the full-file sharing introduced in February 2014 takes root, the
usage of the CIS mechanism will continue increasing.
Ladies and Gentlemen: As already alluded to, the establishment of AKCP was informed by
our desire to optimize the benefits of the CIS mechanism. This is only possible when most of
the credit providers are participants. That is why AKCP's initial task is to recruit credit
providers who are not yet members of the Association. We all appreciate that most Kenyans
are multi-borrowers and their credit reports can only be complete if all credit providers
participate in the CIS mechanism. A wider membership of AKCP enhances a quick
optimization of the benefits to be derived from the CIS mechanism. This is only possible
when an encompassing regulatory framework for all credit providers, both regulated and
nonregulated, is developed. This is the other main task for AKCP.
Ladies and Gentlemen: When CIS was launched, the only products on offer were basic
credit reports. However, the introduction of full-file credit information sharing in February
2014 enabled credit reference bureaus to introduce value added products such as credit
scoring. Credit scoring not only enriches the value of credit reports to the lenders but greatly
improves the lenders credit risk management. Credit scores will help borrowers to know their
risk profiles and how their loans will be priced.
Credit scoring will also go a long way to complement the Kenya Banks Reference Rate
(KBRR). This is because credit scores will form an objective basis for credit providers to
determine the risk premium to be charged above KBRR.
Ladies and gentlemen: As I conclude, I challenge all players represented here today to
closely work with AKCP to ensure the realization of its strategic objectives. As identified in
the Government Report on Increasing Private Sector Credit and Mortgage Finance in
Kenya, CIS has an important role to play in promoting access to affordable credit. The report
encourages full implementation of the Credit Reference Bureau Regulations 2013 as well as
the expansion of the mechanism to non-banks. In order to ensure sustainability of this new
Association, I urge all potential members to support AKCP via membership subscriptions and
other avenues as well as also to engage actively through the committees that constitute its
governance structures.
With these few remarks, Ladies and Gentlemen, it is my pleasure to declare the Association
of Kenya Credit Providers (AKCP's) 2015-2019 Strategic Plan officially launched.
Thank You