EAST AFRICAN BANKS IN PLAN TO SHARE CREDIT INFORMATION ON BORROWERS

Creditinfo Tanzania Limited Director, Davith Kahwa (left), speaks to reporters during the launch last year. Creditinfo was the first company to receive a licence to operate a Credit Reference Bureau in Tanzania 

Plans are underway for commercial banks within the EAC to start sharing credit information on borrowers.

The cross-border credit information sharing has been on the agenda of the Regional Conference on Credit Information Sharing for three years, but its implementation was held back by the differing principles governing the operation of credit reference bureaus (CRBs) in the member states.

The CRBs are expected to weed out serial defaulters taking advantage of open borders in the region.

Working under the umbrella of the EAC Monetary Affairs Committee, regional central banks on the modalities of implementing cross-border credit information sharing as part of reforms towards the achievement of a Monetary Union in 2024.

The Central Bank of Kenya last week said regional central banks are currently undertaking harmonisation of their legal and regulatory frameworks as part of preparations for the envisaged East African monetary union.

Part of the ongoing exercise, according to the Kenyan banking regulator, is to harmonise the legal and regulatory frameworks with the intention of ensuring that the planned cross-border credit information sharing system comes to fruition.

The Protocol for the establishment of the East African Monetary Union (EAMU), which also provides for a single currency for the EAC member states, was adopted in November 2013, setting the stage for establishment of the EAMU.

The East African Community Monetary Affairs Committee, which meets every year to review developments in the regional financial sector, has already made some progress in the harmonisation of monetary policy frameworks, harmonisation of macroeconomic statistics, improvement in the payments system and financial markets development.

It is believed that the adoption of cross-border information sharing on borrowers as part of regional integration would help control the high levels of non-performing loans (NPLs) that have become a source of concern to many regional lenders.

The level of gross NPLs in Kenya stood at $1.15 billion in September 2014 according to data from CBK, a 2 per cent increase from $1.13 billion in June.

In Kenya, CRBs were introduced following concerted efforts by the Central Bank and commercial banks in the year 2009 after the Banking (Credit Reference Bureau) Regulations, 2008 became operational on February 2, 2009.

Since then, Kenya has licensed two Bureaus (CRB Africa and Metropol CRB Ltd).

Similarly, Tanzania has two registered bureaus, which are privately owned companies, —Dun & Bradstreet Credit Bureau Tanzania Ltd and CreditInfo Tanzania,

Rwanda has so far registered one bureau — CRBAfrica Rwanda— while in 2012 the Bank of Uganda (BoU) changed the law that opened up the credit reference bureau market to other firms, ending a three-year monopoly granted to Compuscan Uganda since 2008.

Burundi is still working towards registering a bureau.

According to the Association of Kenya Credit Providers (AKCP) harmonisation of credit information sharing principles within the region is currently ongoing with the possibility of culminating in cross-border credit information sharing.

“As part of the harmonisation, Kenya has started sharing both positive and negative credit information on borrowers while Uganda and Tanzania have opened up their markets to competition,” said Jared Getenga, CEO of AKCP, which was set up to institutionalise and oversee the implementation of an efficient and credible credit information sharing system in Kenya.

“This harmonisation is working and it will eventually be possible to have credit data flowing across the region when the systems are uniform,” he added.

If successful, regional lenders will start sharing credit information on borrowers across the region as part of credit risk management practices, making it difficult for unscrupulous borrowers to access credit within the five member states — Kenya, Uganda, Tanzania Rwanda, and Burundi.

The development of a sustainable information sharing industry is therefore recognised as a key component of financial sector reforms in almost all developing and emerging economies.

“I know there have been talks between the regional central banks towards the establishment of cross-border information sharing on borrowers,” said Sam Omukoko, managing director of Metropol Credit Reference Bureau Ltd.

In the 1980s and 1990s, the Kenyan banking sector was saddled with a heavy burden of NPLs leading to the collapse of some banks. According to CBK the defaulters thrived on the information asymmetry that prevailed due to lack of a credit information sharing mechanism.

Through the Credit Information Sharing mechanism, various lenders electronically pool and pull borrower information using centralised databases in order to address information asymmetry between borrowers and lenders.

“If left unchecked, information asymmetry often results in adverse selection, unsuitable loan products/terms, and exclusion of certain categories of borrowers from the credit market,” said Mr Getenga.

In Kenya credit information sharing has been expanded to non-bank financial institutions such as Microfinance Institutions, Savings and Credit Cooperative Societies (Saccos) and High Education Loans Board.

The East African