The Central Bank just recently rolled out the new Credit Reference Bureaus in an effort to spur both financial inclusion and the economy in general. I guess if you improve financial inclusion, you will improve the economy, that goes without saying. Well what are CRB's? this post is dedicated to young Kenyans as it will have the largest effect on them. CRB's are credit information sharing organisations. Their mandate is to basically collect all information through the respective banks of a borrowers payment patterns and regularity. They then build a shared database (shared between the banks) of each borrower so that banks can get a better picture of the borrowers creditworthiness. It's a thing that should have been implemented a long time ago but well, better late than never.

It's important that the Central Bank are doing this. First of all it will help households borrow more, in the past only large companies have been able to borrow at favourable rates as they can hire finance professionals to project future income and thus paint a good picture of their creditworthiness. Well now, borrowers will be directly responsible for their own financial lives. It is a bit like student life, in high school, if you were well behaved and studied hard, then your transcript and recommendation letters will bear witness to your endeavours. The high school will then share this information with any prospective universities and the university will look favourably at the good students. The two institutions share information so as to make better enrolment decisions and the onus falls on the student to work hard and be diligent so as to get to a good university.

Currently there are issues with the implementation of the CRB's as the CRB's will only share data on non-performing loans (i.e. defaulting on loans). Analysts suggest that good information should also be shared and not only the bad info. Before we get carried away, we should note that as good an innovation as this is, it will not be a panacea to our banking problems. In fact the benefits will take a long while to be felt for most as many will still need a long enough time to develop a good track record.

However, the gist of this post is simple. As a bulk of the country is below 40 years of age, this generation will now be directly responsible for their financial lives. Just like students are responsible for getting into a good university, we are responsible for ensuring that we live responsibly with our finances. This generation should avoid loans for stuff that they don't need, borrow for worthwhile projects rather than mere indulgence as this will all come back to haunt you. Soon, many of us will have a credit score, it will be your responsibility to make it as high as possible to avoid financial ruin.

I think the basic principle behind finance in general is to allocate capital to its most efficient use. Most people have to save for a whole year just to buy a car, well it doesn't have to be that way in finance. If you have a cash flow i.e. a regular salary, the bank can lay claim to your cash flow and thus lend you the money. However without decent information as per your approach to credit, they face great risk by just lending you the cash. Now, CRB's will help more people lay claim to their future cash flows (salaries, wages, rents) to be able to borrow money and improve their lives. Just remember that this will only happen if you are a diligent borrower.

Note to the Kenyan readers of this blog, take your credit seriously and by all means avoid default from now on.