Commercial banks in Kenya will begin disclosing components making up the total cost of credit as a percentage known as the Annual Percentage Rate (APR).
This follows the launch of the “Credit Calculator Online” website (www.costofcredit.co.ke) and mobile application that were developed by Kenya Bankers Association (KBA), the Kenya Banks’ Reference Rate (KBRR) and the APR pricing mechanism.
Speaking during the launch on Monday, 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. We 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 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. 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.
KBA CEO 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 captures all the costs associated with a loan facility. The Mobile App can be downloaded from www.costofcredit.co.ke or Google Play.