CREDIT REPUTATION RATING AS COLLATERAL: A CASE FOR IMPROVEMENT OF THE LEGAL REGIME ON CREDIT REFERENCING
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CONTENTS
Declaration………………………………………………………………………………………ii
Dedication……………………………………………………………………………………….iii
Acknowledgement………………………………………………………………………………iv
Abbreviations and Acronyms…………………………………………………………………………………….vii
CHAPTER 1
RESEARCH THESIS
1.1 Introduction ……………………………………………………………………………………………………………1
1.2 Statement of the Problem………………………………………………………………………………………..3
1.3 Background to the Study……………………………………………………………………………………….13
1.4 Significance of the Study……………………………………………………………………………………….16
1.5 Research Methodology………………………………………………………………………………………….17
1.6 Hypothesis…………………………………………………………………………………………………19
1.7 Objectives of the Study……………………………………………………………………………….20
1.8 Theoretical Framework………………………………………………………………………………………….20
1.9 Literature Review………………………………………………………………………………………………….24
1.10 Profie of the Study…………………………………………………………………………………………………36
CHAPTER 2
NATURE AND FORMS SECURITY VIS A VIS REPUTATION COLLATERAL
2.1 Introduction…………………………………………………………………………………………………………..38
2.2 Stocks of Oil in Transit as Security………………………………………………………………………..42
2.3 Investment Securities…………………………………………………………………………………………….47
2.4 Land………………………………………………………………………………………………………………………49
2.5 Chattels Mortgage…………………………………………………………………………………………………63
2.6 Reputation Collateral and CRBs Nexus…………………………………………………………………64
2.6.1 Historical Development of CRBs……………………………………………………………67
vi
2.6.2 Reputation Collateral in Kenya: Challenges and Opportunities…………….76
2.7 Conclusion…………………………………………………………………………………………………………….83
CHAPTER 3
LEGAL AND REGULATORY FRAMEWORK
3.1 Introduction…………………………………………………………………………………………………………..85
3.2 The Constitution of Kenya (2010)………………………………………………………………………….87
3.3 The Central Bank of Kenya Act (Cap. 491, Laws of Kenya)……………………………………89
3.4 The Banking Act (Cap. 488, Laws of Kenya)………………………………………………………….92
3.4.1 The Banking (Credit Reference Bureau) Regulations, 2008…………………….97
3.5 Conclusion……………………………………………………………………………………………….119
4.0 CONCLUSIONS…………………………………………………………………………………………………………….122
REFERENCE MATERIALS
Books………………………………………………………………………………………………………………………………131
Constitution and Statutes………………………………………………………………………………………………..131
Bills, Sessional Paper(s) and Regulations…………………………………………………………………………132
Journal Article Articles……………………………………………………………………………………………………133
Case Law…………………………………………………………………………………………………………………………135
Reports……………………………………………………………………………………………………………………………136
Newspapers, Speeches and Press Releases………………………………………………………………………137
CHAPTER 1
RESEARCH THESIS
1.1 Introduction
A lender advancing credit looks forward to repayment of the principal amount plus
interest. To mitigate the risk of default, lenders call for security which they can seize
and realise as a last resort to recover full or partial payment of the advanced amount.
Unsecured creditors, therefore, pose a relatively high risk compared to secured
creditors. What then should a lender do to reduce risks associated with lending?
Holden has argued that the most important qualification for successful lending is the
ability to judge the character and credit-worthiness of borrowers.1″Naturally, personal
knowledge of the borrower is of less importance in granting secured advances than in
advancing loans without security.”2 However, it is desirable, in both cases, for the credit
provider to satisfy himself, as far as is reasonably possible, from a careful consideration
of all relevant facts, that the borrower is capable of effecting repayment of the
advancedamount in accordance with his promise.3 In other words, “any security should
1
J. Mlines Holden, The Law and Practice of Banking (Volume 2): Securities for Bankers’ Advances (Pitman
Publishing, 1985), p. 13.
2
Ibid.
3
Ibid.
2
be regarded as a last line of defence to fall back upon in exceptional circ
CREDIT REPUTATION RATING AS COLLATERAL: A CASE FOR IMPROVEMENT OF THE LEGAL REGIME ON CREDIT REFERENCING