Adoption of credit reference bureaus as a strategic response to loan defaulting among commercial banks in Kenya
Wamahiu, Maureen W
MetadataShow full item record
Commercial banks in Kenya have had a high rate of loan default from the borrowers which have caused significant losses to the banks. This is attributed to existence of information asymmetry where commercial banks have varied credit information and credit history about their borrowers. The credit seekers have taken this shortfall to get loans from different commercial banks which increases their rate of default because they might fail to service back all the loans. This study determines the effect of adopting credit reference bureaus (CRBs) as a strategic response to loan defaulting among commercial banks in Kenya. The population of the study consisted of all the commercial banks in Kenya. Information collected was by use of a questionnaire which made use of both open and closed ended questions. The questionnaire used a five point Likert scale which ranged from strongly agree to strongly disagree. Data was edited for accuracy, uniformity, consistency and completeness and arranged to enable coding and tabulation for final analysis. The results revealed that the credit information sharing increase in confidence of commercial banks while giving loans unlike before the CRB became operational. The study established that more and more commercial banks and other lending institutions have turned to CRB for credit information to minimize the loan defaulting. The results revealed that the strategic response strategies increase in confidence of commercial banks while giving loans unlike before the CRB became operational. The study recommends that commercial banks should adopt adequate credit referencing mechanisms as the concept has positive contribution to reduction of loan default, the banks should establish a credit management team that would be responsible and ensure that all customers who may seek to take up a loan with the bank are vetted and checked against the licensed CRBs in Kenya before the approval. Further studies can be performed on other sectors of the economy other than banking industry and research can be done on the positive effect information gathered by CRBs would have on credit scoring and access to credit.
University of Nairobi