njuguna ndung ’ u : credit information sharing to enhance financial sector development address by prof njuguna ndung ’ u, governor of the central bank of kenya, at the launch of the banking credit information sharing implementation project, nairobi, 27 august 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. 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

resilient and competitive financial sector is vital for sustaining the reform process in the real sectors of the economy. significantly, financial sector reforms in india were pre - emptive and proactive rather than a result of banking crises, as has been the experience of several emerging economies. secondly, the momentum of change in the financial system has been the motivation for upgrading the technological infrastructure in indian banking and finance rather than the other way round. in that sense, the indian financial system has been a late entrant in the expressway created by the information and communication technology revolution. thirdly, competitive pressure - a major force of change worldwide - has been reforms - driven rather than a driver of the transformation. finally, a large measure of the impetus for change has come from reforms in the regulatory and supervisory regime and the aspiration to apply international best practices to the country - specific situation. the role of the public sector banks has come under close scrutiny in the recent period. it is necessary to recognise that these banks have played a critical role in the development of the indian economy in the period 1969 - 90, particularly in the spread of banking and monetisation of the economy, the mobilisation of savings and their allocation by plan priorities. for all economies in the early and intermediate stages of development, credit markets face a persistent excess demand, reflecting the existing resource constraints. moreover, market processes can well exclude the genuine credit needs of the weaker sections of society which do not have the competitive strength to bid for funds in the market for bank credit. public ownership in indian banking was intended to address both concerns i. e., the rationing of credit in the face of excess demand not cleared by the market, and the channelling of bank credit flow to the economically disadvantaged sections of society. over the period 1970 - 90, a massive expansion of bank branches occurred, and credit allocations ensured some equity in the distribution of bank credit. at the same time, however, there was erosion in the financial health of public sector banks and deterioration in the quality of customer service. within the ambit of financial sector reforms therefore, the focus since the early 1990s has been on the viability, efficiency and competitiveness of banks and financial institutions. liberalisation and deregulation has to go hand in hand with a greater emphasis on consolidation, productivity, asset quality and profitability. there is also an urgent need for government to divest substantial shareholding to the public, so that these banks can respond effectively to changing market