Loan defaulters will no longer be denied borrowers loans because of their bad repayment reputation but will be charged higher interest rates.
Lenders will also offer lower interest rates for those who have a reputation for repaying loans at a suitable time, with one’s credit history becoming the new main determinant on the cost of loans.
The Central Bank of Kenya will have to approve the proposed credit frameworks that will give banks permission to start applying the risk-based lending model.
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Metropol CEO Gideon Kipyakwai says moving forward, CRBs will maintain credit scores for individuals and businesses that will inform different lenders on interest rates to apply.
“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. The two key attributes will be willingness and ability to pay. If the willingness to pay is not there, it will take time to convert such people,” he says.
President William Ruto since his inauguration put pressure on lenders, accusing them of locking Kenyans out of their products, citing an existing credit rating framework that focused on blacklisting defaulters.
Key consideration for lenders will be assessing one’s three-year credit history to tell their payment habit and decide interest rates to charge them.