Why SACCOs could soon share your loan history and how it will affect your credit score

Kenyan SACCO members could soon have their positive loan repayment records shared through a more comprehensive credit information-sharing system, in a shift aimed at giving financial cooperatives a fuller picture of borrowers' credit performance.

The move will see SACCOs transition towards a full-file credit information-sharing system, bringing them closer to the model used by institutions licensed by the Central Bank of Kenya (CBK), which are required to share both positive and negative credit information.

The development is being driven by the Credit Information Sharing Association of Kenya (CIS Kenya), which says financial cooperatives should uphold both sides of a borrower's credit history rather than focusing only on negative information.

Currently, the information highlighted in the report includes non-performing loans that have remained unpaid for more than 90 days.

The proposed approach would broaden the information shared to include positive credit performance.

For SACCO members, their record of responsible borrowing and repayment would become part of the information available through the credit-information-sharing system.

The report says sharing positive credit information offers an advantage to customers of credit, including SACCO members, by improving their credit scores.

CIS Kenya says SACCOs possess data that can contribute to this process, including alternative data, which the association identifies as a major component of what it is seeking to incorporate into the credit information-sharing mechanism.

The organisation says improving the quality of available data could bring changes in responsible lending and responsible borrowing.

The report also points to the importance of credit information when financial institutions assess potential borrowers.

A credit report is described as an established part of the lending process, but the concern raised is that withholding useful information from the wider ecosystem can leave lenders without a complete picture of their borrowers.

According to the report, surveys show that almost 47 per cent of Kenyans are not financially stable, meaning a significant proportion of borrowers may be struggling with financial management.

For SACCOs, access to better-quality credit information is being presented as part of efforts to understand borrowers' financial health and make lending decisions with more information.

One of the issues highlighted in the report is that SACCOs already possess substantial amounts of information that could be useful for credit information sharing.

CIS Kenya says the move towards SACCOs is significant because many financial cooperatives have data that can contribute to the credit-information ecosystem.

The focus will be on improving how that information is shared and the quality of the data being provided.

The report also highlights the challenge of fragmented data sharing, particularly as SACCOs move towards sharing full credit information rather than only negative information.

Regulatory bodies and associations are also conducting capacity and information-technology system assessments to determine whether SACCOs can securely connect with centralised data repositories.

As SACCOs become more integrated into the wider credit information-sharing system, the security and privacy of members' information will also be a consideration.

The report says the ongoing capacity and IT system assessments are intended to ensure SACCOs can securely interface with centralised data repositories while safeguarding privacy under the Data Protection Act.

The report also highlights identity checks as an important part of the process.

An example given involves checking information through the Integrated Population Registration Services (IPRS), alongside matching information such as an email address with information associated with online platforms.

The purpose described in the report is to strengthen identity validation during customer onboarding and reduce credit risks associated with fraud.

The proposed system ultimately seeks to give lenders better information about both the positive and negative aspects of a borrower's credit performance.

Rather than a system that primarily identifies people who have fallen behind on their obligations, full-file credit information sharing would include information showing how borrowers have performed when meeting their obligations.

For SACCO members, the report specifically identifies the potential benefit of improved credit scores from the sharing of positive credit information.

CIS Kenya says better-quality data can support responsible lending and responsible borrowing, while warning that refusing to share useful information across the ecosystem can leave borrowers' financial health less visible.

The move will require SACCOs to strengthen their systems and address fragmented data-sharing challenges as they interface with centralised repositories.

The report does not provide a specific implementation date for the full-file system, but indicates that regulatory bodies and industry associations are currently undertaking capacity and IT assessments as SACCOs are brought into the broader credit information-sharing mechanism.