Borrowers with poor repayment reputations will be forced to dig deeper into their pockets and pay more interest while those who repay their loans in time will enjoy lower interest on loans.
If approved, lenders say they will use factors such as borrowers’ credit histories from multiple lenders, their fields of work, job sustainability and stability to determine the rates of interest charged on loans.
Lenders will also check if a client has borrowed from other lending platforms and its effect on their ability to repay their loans.
However, lenders say the key consideration in the risk-based lending model will be an evaluation of an individual’s three-year credit history to determine the interest rates.
“The metric with the highest weight – between 40 and 45 per cent – is your payment performance. It has the highest impact on your credit score,” Metropol, one of Kenya’s leading CRBs stated.
Metropol CEO Gideon Kipkyakwai stated that the new framework would punish loan defaulters who tend to have a habit of not repaying their loans.
“We do scoring forward-looking to see your probability of default and, therefore, compute your expected credit loss when you default. This enables the bank to then raise the risk and, therefore, load another one or two per cent (on the interest rate). The two key attributes will be the willingness and ability to pay. If the willingness to pay is not there, it will take time to convert such people,” Kipkyakwai stated.
Speaking during a media briefing in Nairobi on Wednesday, September 28, 2022, Ruto said that CRB listing should be used to instil financial discipline, rather than “an all-or-nothing affair”.
“I’m very happy that between four to five million Kenyans, will, by the beginning of November, be out of the CRB blacklist. This is very important because these Kenyans have been excluded from any formal borrowing and have been left at the mercies of shylocks that exploit them,” President Ruto said.
“I want to commit that the government isn’t against credit listing. We support CRBs as a mechanism of instilling financial discipline in our financial sector but we don’t want credit listing to be an all-or-nothing engagement,” he added.
