CRBs must sharpen capacity to stay relevant

I say this because what we see today in the credit information sharing space are either, multinational entities with limited exposure and therefore interest in developing markets, or local players that are struggling to scale and govern themselves.

These remarks serve as opening salvos in a discussion about the ongoing transaction involving the change of ownership at Kenya’s leading CRB—Metropol Credit Reference Bureau Ltd.

I was not surprised to hear that the transaction is a direct consequence of the Central Bank of Kenya (CBK) conducting a targeted inspection of Metropol in July 2022, the regulator listed the onboarding of a new investor as one of the key recommended corrective actions required for Metropol to recapitalise its business and improve its governance.

The CBK’s point was clear: Metropol needed not only fresh capital and refreshed governance, but also new expertise.

Only well-capitalised CRBs will have the resources to invest in the capabilities and technology required to provide adequate and comprehensive credit histories—information that lenders need to assess the risks of lending to individuals and businesses.

From what I can gather, Geni certainly looks the part. With a board comprising representatives of its financial backers, a London headquartered permanent capital investor; Paul Randall- the immediate ex-CEO of Credit Info; an emerging market credit bureau group and an executive management including Tim Frost-ex Transunion Africa Vice President, Sandip Bhagyawant-ex-head of architecture for Experian and Hamant Maini of Goldman Sachs’ Financial Institutions Group.

Discussions with insiders involved in the transaction reveal that Geni intends to retain all of Metropol’s existing staff as part of the deal, which will retain the essential “local-content” that has contributed to Metropol’s success.

As things stand, two proposals are before the regulator for approval. First, an application by Metropol seeking approval for the sale and transfer of its assets to Geni 1 Kenya Ltd, in accordance with a signed asset purchase deal between the parties. Second, for a transfer of Metropol’s CRB licence to Geni 1 Kenya Ltd.

The acquisition of Metropol reflects a growing trend across the world where financial investors; permanent capital investors as well as private equity funds are buying CRBs from founding shareholders.

Recent examples are the acquisition of Credit Info Group by LLCP, a US private equity fund; the acquisition of Compuscan—one of Africa’s leading CRBs — by Actis; and the acquisition of XDS, a CRB focused on Sub-Saharan Africa, by Lightrock.

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The pattern emerging from these transactions is that their success often depends on how well transaction advisers negotiate protections for legacy interests and continuity. In almost all such cases, founders tend to resist the deals, fearing the loss of influence or being sidelined after the acquisition.

In Metropol’s case, reports indicated its founder-shareholder has tried, unsuccessfully, to contest the acquisition.

However, from responses I received from several other key founders, it is now clear that any initial concerns around the accommodation of founder interests and fears of total loss of control are no longer impediments to completing the deal.

What are the important long-term policy questions? Have CRBs made a meaningful impact on our credit markets? With a non-performing loans (NPL) ratio of 17 percent, Kenya’s banking sector continues to lag behind peer markets.

The CBK’s repeated issuance of guidelines encouraging banks to adopt risk-based lending also reflects concerns about the effectiveness of our credit information sharing framework.

What about serial borrowers with large NPLs spread across multiple banks? The original concept behind credit information sharing was to promote financial inclusion and improve access to credit—especially for people without prior borrowing histories.

By integrating data from mobile money platforms, utility companies, and Saccos, CRBs were expected to support the previously unbanked segments of society.

But in Kenya, the consumer experience has been different. With the explosion of small ticket predatory digital lending, and poor borrower education around the implications of non-repayment, Kenya became a “Black-listed Nation.” The resulting dominant perception amongst Kenyans is that CRBs primarily exist to blacklist people.

Although no longer the case, for a long time, CRBs only collected data on loan defaults, reinforcing this image.

In order to shift this perception, the CBK must act to enforce stronger governance for the participation of digital credit providers in the credit-information-sharing mechanism, excluding those that have questionable practices and CRBs must invest in innovation to be part of the solution and no longer, the problem.

The writer is a former Managing Editor of The EastAfrican