Abstract:
The purpose of the study was to determine factors that influence the usage of credit reference bureau by commercial banks quoted on the Nairobi Securities Exchange. The aim of this study was to determine the influence of; relevance and adequacy of Credit reference Information on its usage and measures that commercial banks can take to enhance use of Credit Reference Information.
The study adopted a descriptive research design to draw the inferences. The data used for the study were exclusively primary and was collected by use of questionnaires. The population of the study consisted of 50 respondents from the listed commercial banks. A pilot test was conducted to test the reliability and validity of the questionnaires before the final analysis. Data was analyzed using descriptive statistics and correlation after entering it into Statistical Package for Social Sciences (SPSS).
The study results revealed that credit reference information is highly relevant to commercial banks in preventing adverse selection, lenders' moral hazard, entrepreneurs' moral hazard, applicants' over-indebtedness and for countering information monopoly, providing incentives to disciplined customers and increasing access to credit for small firms.
The study showed that adequacy of the credit reference information influences the usage of credit reference information by commercial banks. The study findings showed that adequacy of credit reference information influences the nature of credit reporting; negative information only or positive reporting by commercial banks to credit reference bureaus. The study further showed that adequacy of the credit reference information has effect on credit default rates and approval rates by commercial banks in Kenya.
The study concluded that relevance and adequacy of credit reference information highly influences the usage of credit reference information in preventing adverse selection, lenders moral hazard, entrepreneur moral hazard, applicant's over-indebtedness and providing incentives to disciplined customers. This will reduce the informational asymmetry that exists between lenders and borrowers in the Kenyan financial markets hence improve the confidence of the lenders in offering credit facilities to the potential borrowers.
The study recommends change of perception and building of awareness on the roles of credit bureaus, proactive consumer education and media coverage on credit reporting debates and conferences to enhance usage of the credit reference information stored with the credit reference bureau.
