The Central Bank of Kenya has called on borrowers to fulfil their contractual loan obligations on time and engage their lenders in case of any concerns.
In a statement dispatched to newsrooms on Monday, CBK noted that Kenyan borrowers need to take timely repayment of their loans more seriously than ever following the recent improvements in the Credit Information Sharing (CIS) aimed at strengthening lenders' ability to minimize risks on loan facilities.
"Kenya has developed a robust Credit Information Sharing mechanism for the lending sector which has facilitated the development of a credit history for Kenyans to enable them access cheaper credit. This is particularly important for those borrowers who do not have collateral such as title deeds that have traditionally been used to secure credit," the CBK statement reads in parts.
This improvement in the CIS mechanism, the statement adds, is to be seen against a backdrop of two important anchors namely;
- Lenders requirement to adopt a Risk-based Pricing approach that considers borrowers' Credit Report in the pricing of loans
- CRBs requirement to generate borrowers' Credit Score that lenders can use to assess their creditworthiness.
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| Page two of the CBK statement urging borrowers to observe timely servicing of their loans as released on Monday. |
Risk-based Pricing
A risk-based pricing is a methodology being adopted by mainstream banks in the wake of increasing competition from digital lenders like OKash, CreditHela, M-Shwari, OPesa among others, which embraced the strategy earlier. Risk-based Pricing approach basically requires the lender to:
- Know the risk
- Develop a risk-pricing plan
- Negotiate the risk
- Be targeted with the analysis and simple with the output
- Input the parameters in the system in risk-pricing model
- Create a risk review process and new set of rules
- Capture learnings for the future and make analytics
- Build risk-analysis talent and capabilities.
Credit Score
A Credit Score on the other hand, is a number between 300–850 that depicts a consumer's creditworthiness. The higher the score, the better a borrower looks to potential lenders.
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A credit score is based on an individual's credit history that encompasses among other factors, total levels of debt and repayment history.
When lenders review your credit report and request your credit score, they are very interested in how reliably you pay your bills. This is because past payment performance is usually considered a good predictor of future performance.
You can positively influence this credit scoring factor by paying all your loans on time as agreed. For instance, paying your OKash loan late or settling your account for less than what you originally agreed to pay can negatively affect your credit score.
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