Central Bank Governor Patrick Njoroge said in a proposal that has received backing from commercial banks that customers who service their loans accordingly would have their loans priced at about 14 per cent. “Information sharing has not managed much in lowering lending rates even for borrowers who have a good record,” Dr Njoroge told a meeting of lenders and firms that appraise prospective borrowers yesterday.

“A good borrower must be granted a rate lower by 5 per cent (on loans),” added the CBK boss. It would, however, be difficult to extend the benefits to existing loans, Njoroge said, but there was ‘scope’. Lenders have in the past bundled most borrowers on the same risk profile in pricing their loans, because there was no central hub that tracked the repayment histories of prospective customers. In the pricing, the risk of defaulting was loaded on to the eventual interest rates, meaning that good and bad borrowers were awarded the same score. Lenders have shared the creditworthiness of their customers for over two years, but the focus has been biased towards identifying the riskier borrowers.

As a result, the financial sector has been able to cushion itself from the downside of defaulters. National Treasury Cabinet Secretary Henry Rotich told the conference that the lenders must use the shared credit information to reward low-risk borrowers through cheaper loan rates. “Time has come for us to evaluate what impact this initiative has had in the credit market,” Rotich said of the credit information sharing mechanism. He added: “Every effort must be made to ensure this mechanism achieves the intended purpose of making credit more affordable, especially for low-risk borrowers.”

Interest Rate Spread Availability of a central credit information hub would cut the time lenders take to appraise and profile loan applicants, as part of wider cost savings that could be passed down to the borrowers. High interest rates in Kenya present the single biggest deterrent to prospective borrowers, with lenders accused to accumulating deposits at very low costs while extending the same money as loans at a much higher price. Skeptics have cited the wide difference in interest paid to depositors and the rate lenders charge on loans, technically known as interest rate spread, for the surge in profitability of the banking sector for nearly 20 years.

But Joshua Oigara, KCB Group Chief Executive, said the loans in Kenya were fairly priced – considering the interest rates paid on term deposits and saving accounts. “If you looked at how much we pay as interest on deposits, our pricing on loans is very competitive,” Oigara said on the sidelines of the day-long meeting. A poor savings culture in Kenya has meant that there is no pool of long-term money, which banks could use to lend. Instead, bankers have argued that they have been forced to rely on the costlier deposits rather than savings. Oigara acknowledged that good borrowers should be rewarded with deep discounts on interest rates.

“I would lend to a good borrower at 10 per cent; we are not there since we have better information to price loans to different people,” the KCB executive said. His bank is among the three that are granting mobile-phone based loans, whose applicants are appraised using data mined from recent transactions including Safaricom’s M-Pesa. Equity Bank and Commercial Bank of Africa are also granting similar loans. Already, an estimated Sh380 billion was disbursed last year alone through the mobile platform.