Banks roll out annual percentage rate pricing

Left to Right: Kenya Bankers Association CEO, Habil Olaka and current KBA chairman /KCB Group CEO Joshua Oigara go through features of the newly launched “Credit Calculator” Website with Simon Lee of Farewell Consultants

Commercial banks in Kenya will begin disclosing to loan applicants the components that make up the total cost of credit as a percentage known as the Annual Percentage Rate (APR).

This follows Monday’s launch of the “Credit Calculator Online” website (www.costofcredit.co.ke) and mobile application that were developed by Kenya Bankers Association (KBA) in conjunction with the industry’s implementation of the Kenya Banks’ Reference Rate (KBRR) and the APR pricing mechanism.

Speaking during the launch, KBA Chairman Joshua Oigara said that it is anticipated that KBRR and APR will enhance pricing transparency while stimulating competition within the banking industry.

“Promoting transparency in lending remains a priority for the financial services sector and for banks in particular, we therefore are thankful to our stakeholders, including the Central Bank of Kenya and the National Treasury, for their partnership in this quest to enhance access to credit through progressive and enabling policies” said Mr. Oigara.

APR is made up of an interest rate component that is derived from KBRR plus individual banks’ administrative costs and product related fees, a risk premium and the banks’ profit margin; as well as related third party costs.

Mr. Oigara noted that KBRR and APR are just two of the interim and long-term interventions by the players to enhance credit access.

“Beyond interest rates, there are other costs that influence access to credit. And through the Cost of Credit Committee the Government, regulators and industry have identified priority initiatives to address these inefficiencies,” he said.

Among them include reforms of the Lands and Companies Registries; establishing the legal and regulatory framework to support the creation of an electronic movable assets register; and expanding credit information sharing beyond KBA Member Banks to all regulated banks and other entities, including non-bank credit providers, utilities and mobile network operators.

“With these and other initiatives that will be overseen by the Cost of Credit Committee, I fully believe that as a country we will ultimately have a more efficient credit system and, enhanced access to credit,” he added.

The CEO of KBA, Habil Olaka said that the industry-led APR implementation was also a consumer protection intervention that highlights banks’ commitment to provide customers with facts that they need to make informed credit decisions.

Towards this end, KBA partnered with Farwell Consultants to develop the “Credit Calculator Online” website which provides the salient information on the industry’s new pricing regime.

The website and Mobile App also feature tools for borrowers to use when making a loan decision, including a quick APR estimate and a comprehensive calculator that capture all the costs associated with a loan facility.

The Mobile App can be downloaded from www.costofcredit.co.ke or Google Play.