Category Archives: credit reference in Kenya

How to Get and Understand your Credit Score

Have you ever seen your credit report? It is often a requirement for job applicants in Kenya to obtain a “clearance certificates” from a credit reference bureau (CRB) as one of the half-dozen source documents to be considered in their vetting.

Kenya has three licensed credit reference bureaus; Credit Reference Bureau Africa (trading as TransUnion), Creditinfo CRB, and Metropol CRB. The initial law on credit reference means that every Kenyan is entitled to get a free credit score every year, but that is not quite the case.

I tried to obtain a report from all of them and here is a review of the three services, in order of ease of access.

3. Metropol Credit Reference Bureau says that you can get your first free credit report by dialing *433# and by paying Kshs 100 via M-Pesa. Prompts indicated that a payment was required and I entered sent the amount via M-Pesa, but the payment transaction bounced back. Did this twice, and nothing ever came from Metropol and this needs a fix.

2. TransUnion: Credit Reference Bureau Africa was Kenya’s first credit reference bureau and now trades as TransUnion. Registration is Kshs 50/= for you to get your first free credit report. There are two ways of interacting with the service by SMS or by downloading an app.

The SMS route (number 21272) led to a prompt to pay Kshs 50 by M-Pesa. I did that and was led to a mini-menu to choose and receive more text messages. However, each SMS cost Kshs 15 – 19 each to proceed to the next screen and at some point, the TransUnion site gives advice that it is better to download the app and save on SMS transaction costs.

I did that and for the TransUnion Niapshe app from the Google store through which one can request a credit report and a clearance certificate. After payment, it now says you will be getting the free report annually. Also, that as a subscriber, you will get FREE SMS alerts in case of a new enquiry by a lender, new loan information submitted, when a loan goes 60 days into arrears, as well as when a loan is fully repaid.

Since I had already paid the 50, I asked for the report to be emailed. It came behind a password protect for me to enter my national ID (number) to unlock, but that did not work. I emailed a few times back to customer service and got an unlocked report in an email two days later.

TransUnion also sells “clearance certificates” at a cost of Kshs 2,200 (~$22)

1. Creditinfo CRB Kenya. On their site, you enter your name, ID, email, phone number and that leads to a sign-in prompt to pay Kshs 50. Did that, and within five minutes, got my credit report, a four-page PDF with a numeric score, risk classification and the number of credit queries in the past 12 months.

Findings from the Credit Reports

There are similarities in the two reports obtained from CreditInfo and TransUnion including:

  • They have some personal information, but the range and detail vary. TransUnion has more tries to add all your known locations and post office addresses. It reads information from your national ID including home location.
  • They have bank borrowing – loans, credit cards, and bank loan apps (in my case Timiza from Barclays and M-Shwari from CBA/Safaricom).
  • Both collect information on borrowers such as loans that are performing and non-performing loans, fraud, bounced cheques, credit applications, length of credit history, number of disputed record, court disputes etc. 
  • While CreditInfo gives a score (presumably between 0-1000), TransUnion also does but also gives a band to show what its 0-1000 scores mean. The top band being AA being (700 to 1000), followed by BB is (690-697), CC (675 – 689), and a few others up to the bottom (score of 1-489). There is also a star ranking of four kinds; with two dreaded categories of “***Adverse Action Reasons” and “**** Probability Of Default”.

Missing from the reports are:

  • Other loan apps – It appears that the many loan apps Kenya are not subscribers, nor are they sharing their information with the CRB’s.
  • They do not appear to have savings and credit society (SACCO) loan data – despite the numerous ads that various SACCO’s have shared about posting loan defaulters to CRB’s.

Lessons for borrowers

  • Watch the use of your borrowing; while you won’t have a credit report unless you borrow, borrowing too many times, even if it’s small loans that you repay quickly, may be a red flag. Those emergency loans you take on an app stay on your report for five years after repayment.
  • Information posted on different dates can overlap and give conflicting data. But is it in your interest to update the database? E.g. it may have your old employment history or lack your latest address.
  • There is an attempt to collect all phone numbers and relations associated with your ID.
  • Microfinance institutions and SACCO’s are not benefitting from the credit reference data.
  • TransUnion sent an email with some explanations of transaction items – a key to explain e.g. Performing Account with a default historya loan that you defaulted and later repaid/ you are still paying. Although updated as cleared or closed, the default information will remain in the credit bureau for 5 years from the date of final settlement. Also Non-Performing Accounta loan that you have defaulted (90 days) and is still outstanding. It impacts negatively on your credit score.

Summary

In 2014. banks requested a total of 1.6 million credit reports and that jumped to 6 million in 2015 and then declined to 4.9 million and 4.3 million in subsequent years. Meanwhile individuals requested 33,000 of their own reports in 2014, 75,000 in 2015, 84,000 in 2016 and 131,000 in 2017. The Central Bank of Kenya attributed this to people seeking credit bureau clearances to contest for Kenya elections in 2017, but it is worrying that banks are requesting fewer new reports as they work to build profiles of existing borrower.

Accurate credit scoring remains a holy grail in this economy where so many transactions are in the informal sector, and in cash. Credit reference is here to stay, even though many Kenyans don’t understand it or the consequences of not having good credits. Banks have now always been honest brokers, and they have been accused of not sharing information and offering good rates to good borrowers, but only posting defaulters into the credit reference bureau pool. My search proves that this is not the case, but the perception has led to a petition to Parliament to end credit reference bureau practices in Kenya over listing people for owing frivolous balances.

Still, there is no harming in getting your report and knowing what is out there about you.

Draft banking conduct and consumer finance laws in Kenya

In a move that may weed out practices that led to the introduction of interest rate capping, the Kenya government has developed a draft Financial Markets Conduct Bill for consumer finance protection.

Some clauses in the bill of interest:

  • Advertising: A person without a financial conduct license cannot put out an advertisement for the provision of credit. This also applies to building owners (billboards?), or in newspapers, magazines, radio, television.  Also, lender advertisements must be truthful. They cannot be misleading by deception.
  • Credit Limits – cards/overdrafts: Once a credit limit is approved, a financier can’t reduce the credit limits or decline to replace a lost credit card
  • Credit ReferenceNo release of  credit reports to unauthorized people
  • In-Duplum: There is also roundabout way of reintroducing the in-duplum rule. There is a clause that if a loan goes into default, the interest, fees, and other charges to be repaid cannot exceed the balance of the loan on the day it went into default.
  • Insurance: Loans cannot require a borrower to get insurance from a specific company.  
  • GuarantorsThe new laws protect guarantors and requires that they be made aware of all clauses in loan contract before they give guarantees, and with no variation to guarantor terms allowed. This is probably inspired by one guarantor and default dispute involving a cousin of the President that has seen over a dozen cases litigated in several courts over 25 years.
  • Pre-Receivership Management:  The Central Bank of Kenya (CBK)  can appoint a person to assist an institution to implement its directives when the CBK believes a bank or its officers are not in compliance with the act. The new law provides tools to assist troubled banks without shutting them down, and CBK can also order some shareholders to wind down their interest in institutions within a specific time.
  • Spam messages? Bank shall not communicate marketing messages to customers unless the customer loan agreement authorizes it.  
  • Statements: Requires all borrowers to be given term sheets before signing for loans, and a  copy of the loans contract afterwards. They are also entitled to a free statement every six months and other copies within ten days of a request.
  •  Variations: loan agreements shall not have clauses to vary interest during the loan, or be based on a different rate other than the reference rate of the lender.  
  • Wide Regulation: The new laws will apply to all providers of more than fifty loans and issuer of loans have six months to obtain the new licenses. What of loan apps?

Whether this new law which cracks down on unsavoury banking and consumer finance and behaviors will ease out the 2016 interest rate capping law while assuring parliamentarians who  championed the setting of maximum interest rates that bank behaviour will be better-regulated remains to be seen. Also if the clauses will help borrowers who have shifted to other more expensive lending platforms regardless of the consumer finance terms and interest rates charged there.

But the bill also creates a host of new financial regulators including; (i) a Financial Markets Conduct Authority (ii) Financial Services Tribunal (iii) Conduct Compensation Fund Board (iv) Financial Sector Ombudsman (v) an Ombudsman Board who may trip over other existing financial regulators.The bill is in the public participation stage and interested persons can send in feedback on its clauses to ps_at_treasury.go.ke before June 5.

Digital App Loans: Understanding Borrower Behavior

An Interesting conversation was started by a tweet by Francis Waithaka on the true borrowing of costs of app loans that hundreds of Kenyans take every day by making a few clicks on their phones.

It elicited a lot of comments on the cost of finance offers to Kenyans, since an interest capping law passed in 2016 that restrict banks to lend at a maximum of 14%, the lack of regulation of app loans who may be taking advance of Kenyans by charging usurious rates etc. It also led to a mention of a research report from Micro Save about the digital credit landscape in Kenya that was shared by one of the authors.

The Microsave Report (PDF) titled “Where Credit Is Due: Customer Experience of Digital Credit In Kenya”  had lots of insights. It was drawn from feedback from 1,009 farmers located in 50 villages, equally split between Central Kenya and Western Kenya, and also with an equal number of men and women in the study.

At the end of it, the report makes some recommendations to the Communications Authority of Kenya and the Central Bank of Kenya – such as to control the type of messaging sent by text to consumers, and to require app loan companies to share information and to list all defaulters, respectively.

Habits of Borrowers 

  • There is a preference for Chama’ s, SACCO’s and M-Shwari as a source of funding. App loan amounts are too small for significant investments.
  • Majority of the customers took up loans to smooth consumption, emergencies or to boost business.
  • They don’t understand terms and conditions of app loans and they don’t understand credit reference.
  • There are three types of borrowers: repayers (who pay loans on time), defaulters  (who don’t understand the consequences of being listed), and jugglers who take both traditional and app loans – but if they are financially stretched, they are more likely to repay the traditional loans.
  • Customers have learned to game the system through timely repayment of loans and juggling multiple borrowers.
  • There is no extra “PIN” required to request and withdraw an app loan and some family members have done this in secret leading the phone owner to default on a loan.
  • Digital credit usage doubled in Kenya between 2015 and 2016, with awareness and usage of digital credit by far lower in rural Kenya.
  • Digital credit, which offers privacy, is replacing shop credit and family/ friends as financiers.
  • The simplicity of the loan application procedures matters;  too much information requested or if there are too many variables that make it confusing, makes potential borrowers drop off.

Phone Types 

Download a loan app or use USSd

  • App usage is rather low – and this probably related to lower usage of smartphones as their batteries rarely last a full day as compared to cheaper feature phones that retain battery charge for several days of use.
  • Phones are mainly used for money transfer,  deposits, and withdrawals. There is little usage to get information or to browse the internet
  • 64% of respondents in the survey had a basic phone (57% in 2015). Smartphones were 14%, growing slightly and off-setting feature phones which declined slightly to 26%.
  • Loss of a phone may result in a  borrower defaulting on repayment.

Credit Reference Bureaus

  • Formal lenders require clearance from a credit reference bureau (CRB) which costs $22 (i.e Kshs 2,200) and that may exclude borrowers from formal finance. App loans don’t require this, e except that borrowers have not been black-listed.
  • One concern is there is little understanding of credit reference bureaus, and of channels for redress of any disputes.
  • Not all fintech’s report loans to credit reference bureaus.

App loan costs

  • High loan/interest charges are not a concern as they are comparable to other informal money lenders

At the time of the survey, M-Shwari issued 62 million loans (worth Kshs 1.3 trillion), while Equitel and KCB about 4 million each. In comments to accompany the release of their 2017 bank results last month, KCB had 13 million mobile customers, Equity Bank has 12.1 million, while a  CBA statement noted that the bank also serves 33 million mobile savings & loans customers, in East Africa, in partnership with mobile money operators.

Moody’s Debt Summit Nairobi

Moody’s 4th annual East Africa investor summit Kenya, held in association with Rich Management, looked at East Africa’s resilience in Sub-Saharan Africa’s low growth environment.

Excerpts

Economic growth:

  • Kenya and Nigeria summit audience think political risks are main challenge to credit in emerging markets. Dubai summit ones are watching USA (policies under Trump and China (economic slowdown) events
  • Between 2007-15, 6 of 10 fastest growing African economies were commodity exporters, but for 2016-18, 5 of fastest growing ones are in East Africa. While Sub-Saharan Africa growth is at a 20-year low, East Africa is attractive as their growth is not about commodities.
  • Kenya’s economy growing due to infrastructure, FDI, population but banks not benefiting, partly due to the interest rate cap.
  • Investors in Kenya want to see a benign August 8 election with a first round winner and a gracious loser.

Bank’s and interest rate:

  • Banks face a dilemma – on whether to lend to companies in the Kenya economy or to the Kenya government (where they can earn 10% per year short-term, or 14% in the long-term).
  • There was already a slowdown in bank lending (due to regulation and NPA’s) before the interest rate caps.
  • The Cost of borrowing in Kenya was too high; and even after interest rate caps, large banks are still getting good 20% returns on equity.
  • Some firms are opportunistically raising debt – locking in cheap funding ahead of the election e.g. East African Breweries announced they would build a brewery at Kisumu even as they are yet to agree on the financing. But the problems at Nakumatt are probably due to the drying up of their credit lines as banks feel 14% lending does not compensate their risk.
  • At Moody’s, they rate three large Kenya banks – Coop Bank, Equity Bank and KCB Group all equally. Equity has 55% SME exposure and KCB is big in property, while Coop is well-balanced between business and consumer lending – but they have all taken steps to mitigate risks from the interest rate cap law.

Africa Debt markets

  • While Moody’s recently upgraded Senegal and Ivory Coast and stabilized Ghana, 8 of 19 Sub-Saharan Africa economics are still rated negative.
  • South Africa preempts state corporation defaults through bailouts – e.g. at Eskom, SAA – but this doesn’t inspire business confidence.
  • East Africa economies have solid reserves (4-5 months of imports) but key risks are fiscal deficits and debt accumulation (50% debt to GDP is a warning point).
  • One of the best performing Eurobonds in Mozambique defaulted.. a flood of money can ignore fundamentals

Kenya’s Debt

  • Kenya has a history of debt going back over the last ten years.. it knows how to live with the debt. Currently 15 to 17% of Kenya’s income goes to pay debt – (Moody’s get data from government budgets or IMF)
  • The London Stock Exchange, and some European ones, are considering issuing some debt in Kenya shillings.
  • Kenya can do better in terms of exports & revenue e.g. by improving productivity – the government explained this to the IMF.

Water Moment: Understanding Nairobi Water Bills

Have you been getting more and more visits from the water meter crews from Nairobi Water (NCWSC), demanding payment?

For years, I’ve been paying every month the same amount of about Kshs 500 (~$5), without seeing my bill, but of late, the bill has always remained over Kshs 1,000 even when I have paid twice within the month. One day they even came around with a bulldozer which they told area people was to yank out meters from people who have not paid.

So I had some tweet chats and went  to the NCWSC offices and found out some stuff:

  • They no longer send out statements or hardly do. They have cut back on mailing statements via the post office. They won’t even issue you with a bill event at the office
  • They increased their rates at the end of 2015. The guy who came with the bulldozer and another at the NCWSC office said the rates doubled at the beginning of the year.
  • They have instituted a charge of Kshs 1,000 on every unpaid or overdue bill. This means even if you’re late on a Kshs 204 bill (the lowest bill you can get), you get charged Kshs 1,000.
  • You can check your bill via *888# on your phone. Sometimes the SMS comes through without information but you still get charged Kshs 10 for the service.
  • They have an online platform for one to check bills but not ready. Alternately there is a There is a Jambopay Water Bill checker that’s  free to check your bill. It is accurate, but often offline.
  • It costs Kshs 33 to pay your water bill via M-Pesa (assuming Kshs  30 goes to Safaricom and Kshs 3 excise tax charge of the financial service.
  • The due dates for bills vary in the month, depending on when the water readers come round to read or estimate the amounts.
  • Water, electricity and other utility companies can now report customers to credit reference bureaus over unpaid bills.. but who is the customer to be reported? The person who pays the bill? This is often a tenant of a house or building. Or the registered owner of a property with a meter? Sometimes this is the landlord or the contractor who put up the building.

waterOther water tales:

  •  A few years ago, IBM Research in Nairobi gave a talk on the water situation in Nairobi. There are 3,000 known boreholes in Nairobi and it can cost $10,000 to drill one as you have to go deeper than 400 meters instead of 200 in the past.
  • IBM also reported that 40 – 50% of water sourced is lost (just doesn’t get to consumers) AND that 50% of hospital visits in Kenya may be water/sanitation related.
  • A feel good story about water supply and the World Bank in Kenya.
  • Are water charges going up again? – Not sure if these are even more new charges from October 2016
  • Adding value to waterHow the business of bottled water went mad ..How did a substance that falls from the air, springs from the earth and comes out of your tap become a hyperactive multibillion-dollar business? (The Guardian)

Even with the new water rates, getting water from the NCWSC is a lesser evil than paying for your lorries, but…

$ = Kshs 101