Scant data hampers bid to improve borrowing terms

Scant data on borrowers’ credit profiles continues to hamper efforts extend favourable borrowing terms to borrowers.

According to Metropol East Africa managing director, Mr Sam Omukoko limited information on borrowers continues to hamper the assessment of the actual credit rating of customers with the view to rate them in a way that enables those with high quality credit profiles to get preferential treatment while borrowing.

The law only mandates banks and deposit taking microfinance institutions (MFIs) to provide credit information to the credit bureaus. The credit sharing mechanism excludes other key institutions that include credit only MFIs, development finance institutions (DFIs), Saccos telecoms and manufacturing firms, a process that has made it difficult to enable full disclosure of borrowers credit profile.

The credit bureaus are now casting the net wider to incorporate the DFIs, credit only MFIs, Saccos, Utility providers, Telcos and manufacturing firms particularly in the SME sector in the delivery of information on their clients.

“The more data you have on your profile, the easier it becomes for us to calculate the risk or the creditworthiness for you as customers,” he said.

The Q-Score

He was speaking while unveiling new systems of determining credit information. One of the ways is the use of the Q-Score that has a ranking of 10 and 100. A Q-Score or 10 denotes least information available on the customer while 100 indicates sufficient information available on the customer. This is the measure of the amount of data that consumer has on their profile.

The Q-Score is derived from the amount of an individual’s bio data, identity, contact, employment and credit performance information. The credit performance data may also be provided by banks, MFIs, Saccos, utility firms and even the Higher Education Loans Board (Helb).

The Q-Score is now being used to determine the credit score which has a rating scale of 200 (defaulter with very poor credit quality) to 900 (highest credit quality with lowest risk).

According to Mr Omukoko, the average scores that are coming in are between 550 and 650. A credit score below 400 means the customer is a defaulter and hence is categorised as a risky borrower.

“This means that we still have to collect a lot more data for us to see the length of credit history, the number of loans people have been taking to be able to build this profile to be able to get people into the 800 range. Any score above 750 is a very good score. Once you hit a score of 750 and above then you are eligible to start getting preferential treatment from any lender that you approach,” Mr. Omukoko noted.

The Q-Score and other related scores will be available from August 15. This will run constitute over six months of both positive and negative information.

The Kenya Credit Information Sharing Initiative was started in 2009 by the Kenya Bankers Association (KBA) and the Central Bank of Kenya (CBK) to facilitate sharing of information on the profile of borrowers. Whereas the initiative began with a focus on negative information, the positive information has been made available since February this year.

Individuals, however, can now enter their information especially on contact, identity and employment details to enable the credit bureaus to assess borrowing profiles. The credit data can however, be provided by the providers only.

“When there’s enough information on a customer’s profile, we can then be able to run a risk analysis on that customer’s profile and generate a measure that assesses the creditworthiness of the customer,” Mr. Omukoko.

“We may find that if a customer does not have enough information on their credit profile, then they will have a very low Q-Score. Therefore, you will be disadvantaged in engaging the bank to negotiate any good rates or better terms that you deserve”.

The Cost of Credit Committee is also among other things exploring the initiative of expanding credit information sharing beyond KBA member banks to all regulated banks and other players including non-bank credit providers, utilities and mobile network operators.

According to CBK governor, Njuguna Ndung’u, borrowers with a poor credit profile can negotiate with their lenders to see how they can improve their rating.