Credit information sharing and credit access in Kenya : impact, perspectives and challenges

Abstract

Credit bears great significance to people‘s financial lives. However, access to affordable, unsecured and formally provided credit remains constrained, particularly in the developing world, due to multiple factors. Sharing of borrowers‘ credit history, otherwise called information sharing, emerged as a remedy to this challenge and is an integral feature of credit markets with undeniably significant implications for both lenders and borrowers. This study explored the impact of information sharing on credit access in Kenya. The study drew on interviews with industry insiders and borrowers who offered their perspectives on how the information-sharing mechanism operates and how it impacts credit access. Findings indicated that information sharing has broadened and deepened the credit market and made it more competitive. While the mechanism is useful to lenders as a screening and soft collection mechanism, it has not yielded remarkable benefits for borrowers besides expanding access to digital credit. Particularly, information sharing has had a minimal effect in diminishing the role of collateral, promoting risk-based loan pricing and enhancing transparency in credit appraisal. Further, inaccurate and incomplete information, prohibitive participation and limited understanding of the mechanism hamper its effectiveness and constrain credit access. The study pinpointed regulations that require relaxing and others that need tightening to address these drawbacks and deliver greater benefits to users.