The relationship between credit information sharing and economic growth in Kenya

Abstract

This study set out to establish the relationship B'etween Credit Information Sharing and Economic Growth in Kenya. In Kenya there exist two licensed Credit Reference Bureaus that facilitate Sharing of information. The type of information shared for clients are both negative and positive; however it is not clear on the efficacy of these two bodies in fulfilling their goal. This study thus set out to explore the problem of Economic Growth in Kenya due to asymmetric sharing of information on clients' specifically, on defaulted loans, totals arrears and total loan exposures. Theories predict that information sharing among lenders attenuates adverse selection and moral hazard and can therefore increase lending and reduce default rates.

Limits to information-sharing on the financial history of borrowers exist mainly because of credit institutions fear of competition. Poor loan quality has its roots in the informational challenges which afflict financial markets developing economies are the worst affect. The study used causal relationship design while the population constituted registered and operational commercial banks as at 31 st December 2004 licensed to carry out banking business under the Banking Act Cap 488 Part II sec(4)(5).

The research study utilized both secondary and descriptive analysis. Quantitative data on non-performing loans for the commercial banks extracted from annual reports, respondents, the 43 Commercial banks, the Central Bank of Kenya, Kenya Institute of bankers Association Offices and the two Credit Reference Bureaus in both electronic form-from the websites of the respondents and a physical visit to the respondents to request relevant information. This analysis was done with the Statistical Package for Social Sciences (SPSS) Computer Software for analysis of responses and a report on the finding was written. The study concludes that, sharing of clients' information among Commercial banks and individuals helps reduce the level of non-performing loans advanced by Commercial banks.