KBA CEO CHAT - Factors that Influence Personal Credit Scores and Household Borrowing

CEO | Kihara Maina, I & M, CEO
MONTH | February 2020
Chat Admin
Good morning everyone! Welcome to today's chat session
Chat Admin
We are pleased you could join us
Chat Admin
Today's topic is Factors that Influence Personal Credit Scores and Household Borrowing. We look forward to your participation and insights
Paul Wanjaiya
Good Morning.
David Indeje
Good morning Paul.
nuru Mugambi
hi good morning
Chat Admin
Good morning Paul and David. Glad you could join the chat!
Chat Admin
Good morning Nuru
David Indeje
When the session begins, I would like the CEO to elaborate more on digital credit access and the use of cards as a measure to receive credit. There is a huge difference in how banks do their rating and the alternative lending platforms.
Chat Admin
Great question David. We look forward to Mr. Maina's insights on this
David Indeje
Question 2: What are financial institutions doing to ensure the borrowers have the right financial literacy before borrowing credit as a way to make the right decisions?
nuru Mugambi
hi David
David Indeje
Hallo Nuru, great to see you here.
Frederick Buire
Morning all. Kindly lets' get his views about the effect of repeal of the interest rate cap law on accessibility to credit thus far? Credit rating benefits, if any, on access to credit. And lastly, what is his view about collateralised borrowing, and related trends going forward. Many thanks.
Chat Admin
Jacob, Fredrick, Chirag and Victor ..glad you could join the chat!
Chat Admin
As we wait for the official start at 10a.m, you're welcome to post your questions or comments
maina NJUGUNA
Does a personal credit score determine how much one is lent by your bank?
David Indeje
Still on Frederick question, the CEO needs to also shed light on why besides the repeal of the cap, financial institutions are yet to come out clearly on what kind of interest rate they are going to charge for new loans. What we are seeing is new products being tailored for the MSMEs.
maina NJUGUNA
How can one make their credit score better for you to loan them cash?
Conrad Karume
Good morning everyone...
Jacob Kumenda
What is the short term benefit of repeal of the interest caps?
nuru Mugambi
hi conrad
Conrad Karume
Hi Nuru
Jacob Kumenda
Good morning All, am here representing Consumer Grassroots Association (www.cgakenga.co.ke)
Conrad Karume
What is the grace period given (in terms of weeks/ months) before a loan defaulter is listed with CRB?
Jacob Kumenda
CEO should clarify what are some of the factors that increase consumer demand on credit? What is the impact of online mobile money lending apps on bank loans?
Jacob Kumenda
Are there arrangements to increase the grace period for loan defaulters from 90 days to 180 days?
Chat Admin
Ladies and gentlemen, let's welcome our host Mr. Kihara Maina, CEO I&M Bank
Conrad Karume
Karibu sana Mr. Kihara Maina, looking forward to an insightful session
maina NJUGUNA
Karibu Mr. Kihara Maina.
Wandiri Gitogo
Hello everyone
Chat Admin
..."Still on Frederick question, the CEO needs to also shed light on why besides the repeal of the cap, financial institutions are yet to come out clearly on what kind of interest rate they are going to charge for new loans. What we are seeing is new products being tailored for the MSMEs."
Chat Admin
..."When the session begins, I would like the CEO to elaborate more on digital credit access and the use of cards as a measure to receive credit. There is a huge difference in how banks do their rating and the alternative lending platforms."
Kihara Maina
Good morning everybody and welcome to the chat...thank you for joining
Kihara Maina
Thanks for taking interest in todays topic...the issue of credit is very topical in recent years and increasingly so since the removal of the rate caps
Kihara Maina
The KBA is very keen to address the issue of access and affordability of credit. In partnership with the regulator, Central Bank, initiatives like the Banking Sector Charter look to harmonise efforts by all players in the industry in addressing these key question.
Kihara Maina
So weve got questions
Kihara Maina
Id like to get to the questions that came earlier first
Clayton Oywaya
Good Morning Mr. KIhara,
Kihara Maina
Morning Indeje...thanks for your great questions
Kihara Maina
Your quesiton on the use of cards and access to credit; and the role of digital platforms in providing access to credit
Kihara Maina
this is insightful because the number of credit cards in use in the country are relatively few compared to active credit users
Kihara Maina
so for example we have less than 300,000 credit cards issued in this market
Kihara Maina
contrast that with digital borrowers who number in the tens of millions
Kihara Maina
and you will understand therefore the transformational power of digital in providing access to credit.
David Indeje
Thank you sir, for responding to my question, how is the sector addressing this in the wake of regulatory issues among the digital lenders and financial institutions competing for the same pie??
Kihara Maina
digital credit platforms are channels that have to be developed and the credit models used to provide credit to digital borrowers are a mix of traditional scoring and some really innovative ways to assess the credit profile of a borrower.
Clayton Oywaya
I have a question with regards to credit rating based on use of credit cards. In other markets, credit rating is based on use of credit cards however this market this is not so. Clients have held credit cards for years and they have applied for credit facilities but the good credit history from use of credit cards is rarely taken into consideration. How can we have the banks start encouraging the use of credit cards to build proper credit history?
Jacob Kumenda
whats the relationship between huge digital borrowers and low credit card issuance? Do we have a regulator for digital platforms that offer credit?
Kihara Maina
An example of new ways of assessing credit profile is the use of social media presence to determine ones riskiness.
Daniel Njoroge
Have a majority of borrowers benefited from the Nov 2019 0.5% drop in CBR ?
Joy Chepkirui
How does one’s social media presence show one’s riskiness? And is that for businesses or individuals?
Jacob Kumenda
Use of social media presence to determine ones riskiness is attributed as the one key focus of digital lenders. Which criteria are banks using to counter this?
Kihara Maina
On the issue of enhancing financial literacy, KBA through its Sustainable Finance initiatives has come up with programs to enhance the understanding of bank staff on the need for financial literacy and what needs to be incorporated in lending programs; the Inuka enterprise program is doing its bit to enhance the bankability of micro and small enterprises...we believe that informed borrowers are better borrowers...initiatives like the cost of credit web site help enhance transparency as well.
Roselyne Njino
Good Morning Mr. Kihara, which bodies apart from banks are permitted by law to access an individual's credit scores?
Kihara Maina
Frederick great questions
Kihara Maina
While it is still relatively soon after the repeal...we have seen initiatives across the banking industry to provide access to credit for segments that were constrained under the interest rate cap. In particular micro, small and medium sized enterprises...for example the Stawi product that was launched by the President allows MSMEs to access affordable credit through digital channels.
Kihara Maina
The credit rating is something that is now part of the harmonization efforts that I mentioned earlier, credit reference bureaus have been with us for a while and through the Banking Sector Charter, every bank is working on how to incorporate credit scores into risk based pricing and ensure differential pricing for borrowers.
Kihara Maina
On collateralized borrowing, the recent movable assets Act has allowed the use of many different types of access as collateral for borrowing, and opened up credit access for previously unserved markets.
Michael Makanga
Hi,Mine is 1st a comment Banks are doing great to offer affordable credit in the face of growing money lenders, they can improve on offering more cash to sme’s.
Kihara Maina
Hi Maina Njuguna...the credit score one gets is one of the components that is looked at when determining any lending application that is made to a bank. So the better your credit score the greater the willingness of a lender to lend, all other factors held constant. Bottom line, try and keep your score good...for example, Transunion has a 10 band score ranging from 1 to 1000, the closer your credit score is to 1000, the lower your risk.
Kihara Maina
The credit score is really a summary of your credit profile.
Eric Asuma
Hey Mr Kihara, banks have been at the fore front of Financial inclusion given the numerous initiatives by individual banks as well as from an association Standpoint. From where you sit, what do you think needs to be done to unlock other segments of the sector and expand beyond the lending space?
Kihara Maina
On the issue of improving credit scores, credit scores are determined by 5 factors
David Indeje
Bwana CEO, any comment how financial institutions are helping to adders the issue of high risk that dictates high-interest rates. Because, high-interest rates on relatively small loans then put the borrower at a disadvantage?
Kihara Maina
First factor and most important is payment history, for example do you pay your rent on time, electricity bills, mobile banking loans. In the future, there will be more details that credit bureaus will collect so as to improve the accuracy.
Mohamed Mutua
Assalamu aleikum,am here to be advised on how to with low capital?
Mohamed Mutua
I mean starting business with low capital
Kihara Maina
The second factor is how much of your credit limits you are utilizing, so if you have a low usage of credit limits that is better for your score. In other words, do not max out your overdrafts. Pay down balances frequently for revolving credit.
Kihara Maina
The third is how frequently do you look for new credit? So dont borrow from bank X online and then go to bank Y soon after; dont switch cards often...because this pattern suggests you have cashflow problems.
Kihara Maina
The fourth is using the right solution for a particular need...when you have a diverse mix of credit (car loan for a car; mortgage for a house; credit card for day to day) it shows your ability to manage different types of credit, which is good. The last factor would be your credit history, how long have you been using credit, the longer the better if it is well used.
Kihara Maina
Hi Jacob...welcome
Jacob Kumenda
When consumers are confident that the economy is on an upswing, they often make large purchasing decisions again — buying homes, cars, and other substantial assets. Why are banks seen to be retaining the fine prints on loan papers that in turn cause conflict with consumers? Fine prints have been part of the blame when it turns out that consumers didn't understand the loan terms and conditions? What is your take over this Bwana CEO.
Kihara Maina
Hi Conrad...before someone is listed as a loan defaulter, it typically takes one month during which the lender sends a notification to the customer to advise of possible listing with the bureau. Post that, if the arrears continues, then the lender is obliged by law to share the information with the credit bureaus.
Kihara Maina
Hi Clayton...promoting the use of credit is more important versus the use of credit cards per se; we have to get different credit providers, like KPLC, Safaricom, to provide information so should water companies and businesses whos customers utilize supplier credit to share their information with bureaus...credit scoring is a data driven process and the more data points the more accurate the score.
Kihara Maina
Welcome Joy
Julius Njoroge
Great insights. please clarify if billers e.g kplc currently provide credit information to crb
Kihara Maina
Social media use is one of interesting ways to assess credit profile...essentially your behavior on social media, your links all point to a certain behavior type which can be used as a proxy for your credit worthiness or riskiness. Social profiling has been used through the ages as a means of gauging your ability to honor your debts. Its essentially a background check.
Kihara Maina
Good morning Roselyne, anyone can access credit scores from the bureau provided the client provides written consent.
Kihara Maina
Michael good observation...we are working on it...thanks
Kihara Maina
Great question Eric
Kihara Maina
Yes the focus should not be just about credit...it should be about financial literacy. As an association we are focusing on ensuring that people understand finance and on the back of that can then use credit responsibly.
Kihara Maina
Aleikum Salaam Mohamed
Wandiri Gitogo
Morning Mr. Kihara, thank you for sharing the insights. What are some of the requirements for an SME to access credit? if it is a sole-proprietor does the credit score of the owner play a part in the SME's credit rating?
Kihara Maina
Capital is really used in a business to indicate your ability to absorb losses. So if you have a low risk business, you need low capital. As you trade and make profits, you build up your capital base. Ideally, most entrepreneurs start off with savings as their capital or if their idea is really good, you could get someone to invest in your business.
Kihara Maina
Morning Wandiri
David Indeje
CEO, what is being done to bring our women on board? A lot of data shows they are highly disadvantaged.
Eric Asuma
Could you please expound on CBK’s Banking Sector Charter and how Bank's are implementing the same especially after the removal of the interest caps.
Kihara Maina
For an SME to access credit, the requirements are basically the same as large corporate, that is what is the level of capital in the business relative to the risk; what does the business model show about the ability to meet cash flow projections; what do the cash flows of the business tell us about the ability to service debt. It is critical to keep good records as an SME because that is the information a bank needs to make an assessment. The sole-proprietor credit score is an important input.
Kihara Maina
I see questions about the banking sector charter
Kihara Maina
The banking sector charter has several pillars that look to address access to credit for especially undeserved markets like SMEs, the fair treatment of customers, the risk based pricing of products, transparency of loan terms, and enhancement or improvement of bank business models to address the changing needs of the market.
Daniel Njoroge
Hello, Sir. You may have missed my question feom earlier. Have a majority of borrowers benefited from the Nov 2019 0.5% drop in CBR ?
Kihara Maina
Ultimately the banking sector charter should enhance the public's trust of the banking sector.
Kihara Maina
David Indeje financial inclusion initiatives do focus on currently excluded segments and focused attention is being paid to programs that target women in particular and you will see this trend across the banking sector.
Kihara Maina
I questions on the removal of interest rate caps; subsequent drops in the CBR and repricing of loans
Kihara Maina
The removal of the rate caps was a good thing for the economy principally because it allows credit providers to assess end price risk appropriately. We should therefore see credit flowing to previously excluded sectors.
Kihara Maina
On the issue of responding to interest rate changes
Kihara Maina
Yes, banks have been responsive and have amended pricing based on contractual terms. Also generally, banks are responding with lower pricing even for new loans. And this is as a result of competitive forces which are strong in the banking sector. This has been the focus that different commentators have had when highlighting the power of market forces in particular competition to ensure fair pricing. We expect competition to only get better.
Chat Admin
Good morning Mr. Maina? How is the banking industry embracing the use of technology as a pathway to reducing the cost of credit further in the wake of the interest rate cap repeal?
Kihara Maina
David raised a point about regulation and digital lending, on the issue of multiple digital lenders which are unregulated, it is important to appreciate that regulation has a social focus...in particular to ensure that market activity does not harm the society. It is therefore important that any kind of regulation mooted for digital credit addresses the social issues that come with unfettered and perhaps adversely priced credit without limiting innovation and its power to open up financial access.
Kihara Maina
Jacob terms and conditions on facilities are necessary because they are designed to protect both the bank and the consumer.
Kihara Maina
Julius KPLC currently does not provide data but we would encourage that they do.
Kihara Maina
I would like to thank everyone for making the time today and for the very insightful questions. I trust you have learned as I have from your questions.
David Indeje
Thank you CEO, your insights are invaluable about this credit space and what the sector is doing.
Kihara Maina
We retain a team at KBA that would be happy to take on any further questions arising from the issues discussed today.
Julius Njoroge
thanks a lot Mr Kihara
Kihara Maina
Please do join us for future chats with the CEO and the upcoming podcast that will be discussing topical issues.
Wandiri Gitogo
Thank you too Mr. Kihara, it was really insightful
Kihara Maina
On a final note, let us all understand how credit scores and work...and let us all work to build up our credit profiles!
Kihara Maina
Have a great weekend!
Conrad Karume
Thank you for the valuable insights. I now know that my social media activities can influence my credit rating
Chat Admin
Thank you all for participating in today's chat. We also thank Mr. Kihara Maina for leading today's insightful session
ERIC KALUMU
Thank you
Chat Admin
We look forward to having you again next week. Our host will be Mr. Kariuki Ngari, CEO Standard Chartered Bank and the topic will be Strategies of Enhancing Enterprise Credit Worthiness
Chat Admin
Kindly note that the chat session next week will be from 11 a.m to 12 p.m
Chat Admin
Have a good day and weekend ahead!
nuru Mugambi
by
David Indeje
Thank you for the interactive session
nuru Mugambi
have a nice weekend
Sylas Wafula
Hello Mr. CEO? How does technology help in banking & how has it helped the industry in previous two years?