The Potential for Credit Scoring for SME lending in Kenya

This report discusses the current use of credit scoring in Kenya, constraints on the implementation of credit scoring and options for an implementation strategy.

The report states that credit scoring can improve financial access for small and medium enterprises (SMEs) in Kenya by addressing risk assessment challenges of lenders. It identifies key prerequisites to successful scoring for SME lending, and assesses the presence of these factors in Kenya. Findings and conclusions include:

• Large lenders have been developing custom scorecards using internal data and best practices;
• Volume of SME applications and accounts is insufficient to allow smaller lenders to develop their own scorecards;
• Lack of several factors such as licensed credit bureaus, mandatory reporting of credit performance information and standardized collection and calculation of financial data impede development of a generic pooled data scoring model;
• Portfolio risk management using credit scoring requires significant investment in risk management skills and infrastructure, and may not be cost-effective for small lenders.

The report concludes with recommendations for the Government of Kenya, banks and the Financial Sector Deepening Trust.