An assessment of Credit Rating as a Tool to Affordable Lending Among the sme's in Mombasa County
Mugendi, Anthony Njiru
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The amendment of the banking Act (Cap) 488, Legal notice Number 97 has changed how financial institutions view SME's in Kenya among other businesses and how to modify their business strategies to tap into the emerging business frontiers. Credit Reference Bureaus (CRB) are now legalised and mandated to collect financial information and rank potential consumers of credit on their credit worthiness. Information gathered by the CRB's will be used to generate a credit score which will be assigned to a potential borrower. Credit scoring will be an alternative to collateral that has been used inthe past as security to secure credit from financial institutions. The study sought to asses credit rating as a tool to affordability and accessibility of credit to SME's in Mombasa County. Identify the nature of tools and their effectiveness in credit rating as well as establish whether consumers are aware of the benefits they can derive from this state of affairs. The target population were the 10 midtier banks within the Mombasa County as per the CBK / KBA records which constituted the sampling frame for the Portfolio relationship officers. The target population for SME's was 226 business customers with turnovers of at least kes500,000 per month, banking at a Kenyan second tier bank and 30 portfolio relationship officers. Random sampling procedure was used to randomly select 4 banks from which a total of 9 portfolio relationship officers involved in business credit appraisals and debt management were selected. 68 SME's were randomly selected-from the target population (business customers). Both the customers and portfolio managers selected represented a sample size of 30% for each of the target population. Questionnaires were used to collect responses due to their high response rate, ability to obtain response within a short time period and to ensure anonymity of the elements. Both quantitative and qualitative methods were used in data analysis. From the findings it was concluded that CIS reduced asymmetrical information hence having an impact on accessibility of loans for the SME's in Mombasa County. CIS was found to have an influence on pricing, turnaround time for loan applications, default rate and management of nonperforming loans. The financial institutions through their association - KBA and their regulator CBK, need to ensure that their members complied with the Government of Kenya Banking Act Cap 488, Legal Notice 97 to ensure that a full file reporting environment was attained as only negative information was being share. The government need to hasten the amendment of the SACCO Act and put in place enactments to allow utility firms and courts share information with the financial institutions of both positive and negative information. A vigorous campaign via all financial institutions and utility providing firms need to enlighten the Kenyan citizen on the benefits of CIS and the stages they are in to ensure full file reporting environment is attained. The CRB's should provide their credit reports twice per year to those they have a data bank for and decentralize their services to county levels as getting clearance certificates is through their Nairobi offices.