TransUnion Kenya CEO Morris Maina sat down with the Business Daily to discuss the state of the consumer and the status of reforms in the credit information sharing framework in the backdrop of the firm’s report showing a new two-fold rise of accounts in default.
Where does the consumer stand amid high interest rates and rising loan defaults?
The consumer is feeling the pressure, and this is in several ways. When the consumer wants to access a new loan, he or she is facing a more cautious lender because lenders have tightened their policies to protect themselves from rising NPLs (non-performing loans).
It’s a bit of a chicken-and-egg situation where a consumer wants credit but the ability to get that credit is tighter. The consumer who already has credit on the other side, their disposable income has fallen from rising interest rates, which has put pressure on their ability to pay.
Does that make you worried about private sector credit having seen a bit of weakness already?
It is concerning for everyone in the industry and government because credit stimulates the economy. Hopefully, the Central Bank of Kenya can set interest rates down soon. There is a bit of encouragement when I see a few lenders becoming bullish and less sensitive. We have seen a lot of innovation around loan tenures and the adoption of elements of risk-based pricing which were yet to be adopted despite regulatory approvals. The beauty is that the developments will address credit access in the future.
We have seen reforms in credit information sharing. Before CRBs have been seen as blacklists, are we now seeing the credit reference bureaus for what they should be?
Structurally we have achieved a lot in terms of addressing that gap. CRBs today receive positive and negative data, in a sense full files. Of course, they are elements that need to evolve. For me, and this is an area of agreement, there is an opportunity to drive broader awareness of the benefit of credit information sharing to the wider population.
Less than 20 percent of Kenyans access their credit reports every year. The optimum situation is probably over 80 percent of Kenyans accessing their reports. There is a lot of financial education that needs to be done and not just by the private sector.
We have engaged with the regulator to see how we can go out there, drive awareness and remove the stigma of blacklisting from a credit bureau perspective.
We also want to collaborate as CRBs to validate our credit scores and ensure our scores are speaking the same language and can be adopted in a standard manner. We are also seeking to bring alternative data to the CRB ecosystem.
Do you still feel a growing appreciation for the info you offer even when most people might only seek credit reports when applying for jobs or loans?
I have seen appreciation starting to happen. In the past, you probably accessed it when your report was requested somewhere. Now, there are partnerships we have with lenders where we can proactively share reports with a guideline on what you can do to improve your scores. It’s a kind of gamification. In markets where this has worked, access to credit reports is in the palm of your hand. This is not necessarily the case. Within TransUnion, we have innovated and have connected with fintechs and banks to make credit reports available via their portals.
From where you sit, what’s your outlook especially going into the second half of 2024?
I do expect there will be a coping mechanism to the challenges seen with high non-performing loans and interest rates. Technology will, for instance, help in differentiating customer profiles and behaviour allowing an improvement to traditional KYC (know your customer) methodologies. Risk-based pricing is also a step forward where this is like collateral to borrowers if you think about it. Alternative data will meanwhile help unpack the micro, small and medium enterprises.
In closing, how can we get 80 percent of Kenyans to access credit reports? What is the pathway to that goal?
There are two critical cogs to me in the wheel of success. Financial literacy and education which is driven consistently and second is access.
Make people aware then make it highly accessible, which is possible with our mobility as a country and internet penetration. Once you get volumes, availability and pricing of solutions become possible.
