PHD-Department of Management Science
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Browsing PHD-Department of Management Science by Author "James, Rosemary Muthoni"
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Item Credit information sharing, bank characteristics and credit market performance in Kenya(Kenyatta University, 2014) James, Rosemary Muthoni; Korir, J.K.Efficient credit markets are essential for economic growth and development. However, asymmetric information between borrowers and lenders results in inefficient allocation of credit and credit rationing. In Kenya, information asymmetry has led to the high cost of credit that has constrained the expansion of businesses and deterred access to credit by a significant proportion of Kenyans. Further, this information asymmetry problem has also been a contributory factor to the high levels of Non-Performing Loans (NPLs) in the Kenyan banking sector. It is in this regard that the government licensed Credit Reference Bureaus (CRBs) to reduce problems of information asymmetry by facilitating credit information sharing. With the roll-out of credit information sharing effective 31st July 2010, it was envisaged that the benefits of credit information sharing would start accruing from the middle of the subsequent month after the initial submissions; banks would start accessing credit reports from mid August 2010 for loan appraisals and customers would start accessing their credit reports at the same time. Given the recent entrance of CBRs into the credit market in Kenya, the emerging question is whether or not the introduction of credit information sharing has contributed to credit market performance. This study therefore sought to provide an empirical investigation of the impact of credit information sharing on credit market performance in Kenya. Specifically, the study investigated whether credit information sharing has improved credit market performance through reduced default rate, increased availability of credit and reduced cost of credit. Both the explanatory and descriptive research designs were used. The target population were the 43 financial institutions that are licensed under the Kenyan Banking Act. A census of the 43 financial institutions was carried out where both primary and secondary data was collected. Semi-structured questionnaires administered to the credit managers at the headquarters of each of the commercial banks were used to collect primary data. Secondary data pertaining to default rates, credit availability and cost of credit were collected on the same banks for a period of five years between 2008 and 2012 recorded on a quarterly basis. CRBAfrica provided data on the intensity of use of the credit reports by different banks. Descriptive statistical analysis of frequencies, percentages, means and cross-tabulation analysis provided a summary of the variables while panel data regression models were used to establish whether introduction of credit information sharing in Kenya has had an impact on the credit market performance. Open-ended questions were analyzed by grouping the common themes together and drawing conclusions from the findings. The research findings showed that credit information sharing affected the performance of the credit market. The study also established that there was differential impact of credit information sharing by ownership structure, bank size and bank age. The study concludes that the presence of credit information sharing lead to a reduction in the default rates and an increase in credit availability. However, it failed to impact on the cost of credit as the interest rates increased even with the introduction of credit bureaus. The study therefore recommends that the government should extend credit information sharing beyond the banking sector and also facilitate sharing of both positive and negative information. There is also need to sensitize the financial institutions on the benefits of credit information sharing. Finally, there is need for the government and the financial institutions to find ways of reducing the cost of borrowing in the country.