Asymmetry of Information on Credit Reference Bureaus for Bank Customers in Kenya: A Case Study of Nakuru Town

Abstract

Credit Reference Bureaus (CRBs) are institutions that collect information from banks, creditors and available public sources on a borrower’s credit history. The role of CRBs in Credit Information Sharing (CIS) is to compile database of customers’ credit information and generate Credit Reports which banks and other authorized lenders use to appraise the credit worthiness of the customers. The purpose of the study was to establish the nature and extent of the information which the customers lacked about CIS and the causes of the asymmetry of information with a view to improving awareness and participation. The researchers conducted unstructured interviews involving customers from banks in Nakuru town, and wrote their responses verbatim. The data was analyzed qualitatively by identifying major themes, coding them, and carrying out content analysis. The researchers found that 62% of the customers were unaware of CIS. Furthermore, the informed customers had more exposure to their obligations in the CIS and the consequences of violating them. In contrast, they had no or little information about their rights and how they could benefit, hence low participation. Therefore, the policymakers and promoters of the CIS in Kenya should develop message content that highlights the benefits and rights of customers in the CIS. Key Words: Asymmetry of information, Credit Reference Bureaus, Customer, Credit Information Sharing, Credit Rating, Obligations, Rights. INTRODUCTION Pursuant to the Banking Act (Credit Reference Bureau) Regulations 2008 (henceforth “the Act”), Credit Information Sharing (CIS) was rolled out in Kenya by the Central Bank of Kenya (CBK) in July 2010 and the banks started submitting the customers’ credit information1 in August 2010 to the two CRBs: The CRB Africa Ltd and the Metropol Ltd. According to CBK (2011) as of 11th April 2011 banks had submitted over 760,000 records and accessed 442,128 credit reports2 from CRB Africa Ltd which was the only CRB. Against this commendable progress by banks, customers accessed only 865 credit reports which were below the CBK’s expectations due to unawareness of CIS. However, to the researchers’ knowledge there is no published works that empirically assesses the information gap about CIS in Kenya due to the infancy stage Kenya is at implementing CIS. Therefore, this study seeks to establish the nature and extent of the information which the customers lacked about CIS, the causes of the asymmetry of information, and recommend ways to improve customer awareness and participation in CIS. The pertinent question which was of primary concern to the study was, ‘are customers’ aware of how CIS affects them?’ The study found that 62% of the customers were not aware of CIS, and those who were informed had skewed knowledge in favour of customers’ obligations against customers’ rights. The next section presents the theoretical and empirical review about asymmetry of information on CRBs followed by the methodology, discussion of the findings of the study, and lastly the summary, conclusions and recommendations.