Njuguna Ndung'u: Promoting private sector credit and mortgage finance
in Kenya
Keynote address by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the
launch of Metropol Consumer and SME Bureau Scores, Nairobi, 24 July 2014.
* * *
Mr. Peter Kebati, Chairman, Board of Directors, Metropol Credit Reference Bureau;
Mr. Sam Omukoko, Managing Director, Metropol Credit Reference Bureau;
Board Members;
Representatives of Commercial Banks, Microfinance Banks and other Financial Institutions;
Distinguished Ladies and Gentlemen:
It is a great honour for me to join you this morning to witness the roll-out of another
innovative financial product, Metropol's Consumer and SME Bureau Scores. At the outset, I
wish to express my gratitude to the Directors and Management of Metropol Credit Reference
Bureau (CRB) for inviting me to this auspicious occasion.
Ladies and Gentlemen: The roll-out of full file banking sector credit information sharing
effective February 2014 is already yielding positive results. We are gathered here today for
the inauguration of Consumer and SME Bureau Scores, which has been made possible by
the expanded credit information sharing (CIS) mechanism. I take this opportunity to
congratulate Metropol CRB for quickly seizing the opportunity to develop a customer's
scoring mechanism, that will contribute to the growth of the credit market in Kenya.
Introduction of credit scoring by Metropol CRB will not only enrich the value of its credit
reports to the lenders but will greatly improve the lenders credit risk management.
Ladies and Gentlemen: When the CIS mechanism was launched in 2010, the viability of the
licensed CRBs hinged primarily on the volume of credit reports accessed by the lenders.
However, with the introduction of full file credit information sharing, CRBs are now well
positioned to introduce value add products such as credit scoring that will not only propel
their success but will contribute to the development of the financial sector; especially the
dynamic and changing profile of collateral technology and pricing credit in our financial
market.
As you are 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
private sector credit and mortgage finance in Kenya. The formation of the Committee that
comprised of representatives from the National Treasury, Central Bank of Kenya, Kenya
Bankers Association and other private sector representatives and market players, was
informed by the Government's desire pursuant to Vision 2030 to transform the country to a
middle income status by 2030. Countries that have attained a middle income status, such as
Malaysia and South Africa, have reported private sector credit to GDP ratios of more than
100%. Kenya's current ratio of private sector credit to GDP of about 40% is way below those
of middle income and comparable countries. In addition, Kenya has only about
20,000 mortgage accounts concerted efforts to improve the situation were thus deemed
necessary.
Ladies and Gentlemen: The Committee finalized its task in April 2014. The various
recommendations made by the Committee are already being implemented. As we gather
here, the banking sector is at the deep end of rolling out a transparent pricing mechanism,
whereby all banks are required to price their loans based on a common reference rate, the
Kenya Banks' Reference Rate (KBRR). This was the first of the recommendations by the
Committee. To supplement the KBRR, the banking industry has also rolled out the use of the
all-inclusive Annual Percentage Rate (APR) in loan pricing. This is loan pricing that includes
the interest rate on the loan and other fees and charges such as appraisal, legal and
valuation fees.
KBRR is computed as an average of the Central Bank Rate (CBR) and a two-month moving
average of the 91-day Treasury bill rate, and announced by MPC. The CBR reflects the
monetary policy direction consistent with inflation profile, while the 91-day Treasury bill rate
reflects the return on short term risk free assets. Prior to this every bank had its own base
rate, whose composition was not known to the borrowers. This now opens a transparency
window for borrowers who can compare and negotiate lending rates across banks.
Banks are now required to explain to their customers and the Central Bank the composition
of the premium (k) they charge above KBRR. The Central Bank will periodically publish on its
website details of the premium (k) obtained through returns from the banks. The CBK has
already developed a template for this information capturing process. This will in turn promote
transparency and competition in the pricing of credit. Borrowers are now empowered to
compare interest rates offered by banks as they shop for the cheapest credit facilities. This is
the surest way of increasing credit in the market to the productive and profitable sectors.
The contribution by Metropol's credit scoring is to help customers know their risk profile and
how their loans will be priced but also empower them with tools to negotiate for better rates.
Ladies and Gentlemen: Apart from the introduction of KBRR, the Committee made other
recommendations that require the Government and other players including the Central Bank
to implement certain policy and institutional reforms to promote private sector credit and
mortgage finance in Kenya. These reforms will have an overarching objective of reducing the
cost of doing business. These recommendations include:
• Promotion of sharing of infrastructure by banks.
Fast tracking of the on-going modernization of the Lands and Companies Registries
•
to facilitate quicker collateral process.
• Establishment of a legal framework for creation of an electronic moveable assets
register.
• Enhanced financial services consumer protection and education.
• Ensure that Government borrowing does not crowd out private sector as well as
adopting alternative sources of funding such as sovereign bonds. (This has been
done with success).
• Fast tracking capital markets reforms to make capital markets more efficient and
attractive alternative sources of long term funding.
• Facilitate lines of credit for large housing development projects targeted at lower
income buyers for owner occupation.
These recommendations are at different levels of implementation.
Ladies and Gentlemen: Integrity and sanctity of information shared under the credit
information sharing mechanism and building information capital are critical in promoting
confidence in the mechanism. Once individuals and participating entities are assured of
sanctity of the mechanism, application will increase and more innovative ideas will be shared
to enrich the mechanism. This is the reason why consumer protection measures under the
CIS mechanism were strengthened under the revised Credit Reference Bureau Regulations,
2013 that became operational in February 2014. In the same vein, I urge Metropol CRB and
other CRBs to ensure that their value add products are introduced within the same precincts
of consumer protection. Any blot on consumer confidence may ruin a noble cause that has
taken several years to establish.
Ladies and Gentlemen: As I conclude, it is worth noting that we are yet to reach the optimal
level in credit information sharing. There are still several credit providers who currently are
only able to contribute data but cannot access credit reports directly. We need to bring all
financial sector and non-financial sector credit providers into the ambit of the CIS
mechanism. The Central Bank will continue to support market development and market
players in the development of an all-encompassing CIS mechanism. This will undoubtedly
increase the supply of credit to the private sector to support Kenya's growth and
development as envisaged under Vision 2030; but more importantly, increasing supply must
go hand in hand with declining and appropriate pricing of this credit. But above all this credit
must be destined to productive sectors of the economy to make a difference to an
allinclusive growth.
With these few remarks, Ladies and Gentlemen, it is now my distinguished honour to
declare the Metropol CRB Consumer and SME Bureau Scores officially launched.
Thank You.