TERMS OF REFERENCE FEASIBILITY STUDY ON THE DEVELOPMENT OF A CENTRALISED POINT OF DATA SUBMISSION FOR THE BANKING SECTOR 1.0 INTRODUCTION 1.1 Background Since the rollout of Credit Information Sharing (CIS) in Kenya five years ago, a number of efforts have been made to strengthen the operations of the mechanism. The aim of these initiatives, structured in 3 phases, is to achieve a full-file comprehensive system that supports the use of credit reports and scores in credit risk management and increased access to credit for low-risk borrowers. Prior to 2013 when the Association of Kenya Credit Providers (AKCP) was established, coordination of these efforts was in the hands of the Kenya Credit Information Sharing Initiative (KCISI), a project jointly run by the Central Bank of Kenya (CBK) and Kenya Bankers Association (KBA) and funded principally by the Financial Sector Deepening Trust (FSD Kenya). AKCP is a member-based Association that brings under one umbrella all parties interested in promoting the extension of CIS in Kenya beyond CBK-regulated entities - namely commercial banks and microfinance banks (MFBs). FSD Kenya was established in early 2005 to support the development of financial markets in Kenya as a means to stimulate wealth creation and reduce poverty. It has played a significant role in supporting the development of CIS in Kenya by contributing to the budget of each of the three phases. FSD s interest in this process stems from the recognition that CIS is a fundamental piece of infrastructure that minimizes information asymmetry between suppliers and consumers of credit, thus promoting access to credit by Small and Medium Enterprises (SMEs). One of the turning points in the CIS journey in Kenya is the publication, in January 2014, of amended regulations that ushered in full-file CIS, with more explicit provisions allowing participation by non-bank credit providers. This has led to positive data sharing by commercial banks and microfinance banks, as well as the entry of many third party credit providers in the CIS mechanism. 1.2 Main challenges to be addressed 1.2.1 Challenges posed by expansion of the range of participants The legal and regulatory framework for CIS in Kenya has allowed for the licensing of multiple CRBs. As a result, market forces are at play to incentivize the development of value-added products, including credit scores. Currently, there are three (3) registered CRBs operating in the market, TransUnion CRB (licensed in February 2010), Metropol CRB (licensed in April 2011) and CreditInfo CRB (licensed in April 2015). Participants to the mechanism are expected to submit information to all CRBs but are free to purchase reports from a CRB of their choice.
The presence of several credit bureaus has significant benefits, but also poses a number of challenges: Tedious data submission process Participants to the mechanism must submit the same set of data to each CRB through portals provided by the respective CRBs. Some of the data sets are enormous and take a long time to upload. Submission to multiple CRBs complicates the process by increasing the workload and the difficulty of implementing real-time data transmissions. Errors during data submission Where credit providers have to make repeated uploading of data, this may result in human-errors, such as submission of differing files to the CRBs. Such differences have been noted in past submissions. Conflicting Error Logs Each CRB carries out independent validations on the data, based on the rules in the Data Specification Template. However, huge variances have been noted in acceptance rates of data submission of the same file, some as high as 100%. 1.2.2 Sustainability of AKCP Being a member-based not-for-profit organization, AKCP s main source of funding is member subscriptions. Initiatives for the promotion of CIS have in the past been largely been donor-funded, but such funding is expected to reduce over time in order to allow increased industry ownership of the development of this mechanism. One of the strategies for increasing and retaining AKCP membership is by providing an efficient data transmission mechanism that will eventually be available only to members. 1.3 Need for Data Hub AKCP has for a long while considered the need of implementing a centralized data submission point to address the twin concerns raised in 1.2 above. If implemented, participants of the CIS mechanism will only make one submission. Each CRB would then be able to access a copy of the information submitted. The hub may also implement centralized validation rules that give a unified error log to a credit provider upon submission of data. Further, one protocol will be developed that will allow integration to credit provider systems, that will allow more frequent CRB updates, including daily submission of Application file that constitutes one of the next steps in the process. The establishment of a data hub was also envisioned by the CBK and provided for in clause 50 (6) of the Credit Reference Bureau Regulations, 2013. AKCP also considers the data hub essential as a value-added product to its members and one that provides an opportunity to strengthen its self-regulatory compliance function. It will also help streamline the access of new entrants to the CIS mechanism by guaranteeing that AKCP becomes the first point of call. It is intended that AKCP will pilot implementation of the central hub in partnership with Kenya Bankers Association. In this arrangement, the initial users of the hub will be the 45 members of
KBA who also subscribe to AKCP. After a successful pilot, it is anticipated that the services of the hub will be expanded to other members of AKCP. 2.0 OBJECTIVE AKCP would like to use the services of a consultant to help evaluate the options for implementing the data hub solution. The consultant will also undertake a feasibility study that will inform financial viability and technical specifications of the system. 3.0 SCOPE OF WORKS The consultant will be required to carry out the following specific tasks: 3.1. Conduct interviews on AKCP Secretariat and other stakeholders such as regulators (CBK and SASRA), industry bodies (KUSCCO, AMFI and KBA), credit bureaus (TransUnion, Metropol and CreditInfo), FSD Kenya, credit providers (KBA members) and other stakeholders to obtain views, needs and challenges associated with data submission, etc that may be addressed by the data hub. 3.2. Carry out desktop reviews on materials relevant to the implementation of a data hub including: a. The Existing Data Specification Templates and Data Transmission Rules b. Relevant Acts of Parliament dealing with ICT issues c. CRB Regulations d. AKCP Code of Conduct e. Documentation on South Africa CPA s data hub 3.3. Design an architectural representation of the implementation indicating: a. Application and Database Software to be used b. Networking infrastructure c. Encryption and Internet Security protocols d. Structure of back-up sites e. Data holding and transmission capacities 3.4. Identify possible options for hosting of the data hub; noting the cost implications 3.5. Estimate all costs and resources pertaining to the implementation and running of the data hub, including: a. Prerequisite skills/knowledge AKCP must possess for a smooth running of the data hub b. Application and database development, encryption, security, network bandwidth and back-up locations c. Number of support personnel that may be required to run the data hub, if any d. Annual recurrent costs of running the hub 3.6. Develop a draft project plan for the installation of the data hub indicating expected timelines for the project and the User Acceptance Testing (UAT) period. 3.7. Draw up an objective conclusion on the feasibility of implementing a Data Hub solution
3.8. Disseminate the findings of the feasibility study through stakeholders workshop 3.9. Draw up a final report on the findings; including feedback received during the stakeholders dissemination workshop. 4.0 CONDUCT OF WORK The consultant will formally report to the Chief Executive Officer AKCP based at the Kenya School of Monetary Studies. Progress on implementation will be monitored by FSD Kenya through the Head Finance for Growth. AKCP will take charge of logistics including organizing meetings with stakeholders. The consultant will manage their own timeline in consultation with AKCP especially where field visits are to be planned and adapt their schedule in light of availability of stakeholders, unforeseen opportunities and constraints and other factors. 5.0 OUTCOME AND DELIVERABLES The deliverables of this consultancy are: 5.1 An inception report, within 5 working days of commencement of the consultancy containing the findings in Section 3.1 and 3.2, as well as a draft work plan of this consultancy. 5.2 A report detailing a draft project plan and the financial implications of the implementation of the data hub, within 20 working days of commencement of the consultancy 5.3 A final report consolidating all the findings of this consultancy, including a summary of workshop deliberations within 25 working days of commencement of the consultancy. Payment under these Terms of Reference shall be made according to the following guidelines; a. Upon acceptance of the inception report, FSD will authorize payment of 30% of the agreed fee together with all expenses incurred to date b. Upon acceptance of the report containing the draft project plan and financial implications, a further 30% of the agreed fee shall be authorized for payment along with all expenses incurred. c. Upon acceptance of the final report, the remaining 40% of the agreed fee shall be paid after all substantive comments from AKCP are submitted and finalized with the consultants. Should AKCP not provide comments within 14 days of the submission of the draft (or subsequent redrafted) report, then the report will be deemed to have been finalized to AKCP s Satisfaction and payment will be due. The copyright for all material printed under these Terms of Reference will pass to AKCP and FSD Kenya. It is FSD s practice to publish the reports it commissions in its own house style. There is therefore no requirement for material to be extensively formatted beyond that required to indicate how material should be logically presented in the final report. All final reports should be presented in an electronic format allowing the text and graphics to be manipulated in preparation for publication. Where a final report is presented in a portable document format (pdf) generated from another format (such as Microsoft Word) it should be
accompanied by the original file from which it is generated. All representations of graphic material (tables, figures, drawings, charts, graphs and photographs) must be able to be reproduced at high print resolution. Tables, figures, drawings, charts, graphs should be provided in Microsoft Excel or Adobe Illustrator format. Photographs must be provided in high-resolution JPG images set to minimum of 300 dots per inch (dpi). Any technical questions regarding these requirements should be addressed to FSD s Communications Officer. 6.0 REQUIREMENTS Mandatory requirements Competence in system development and system analysis Competence in IT security and Data Communications Knowledge of CIS or experience in data sharing mechanisms Understanding of financial sector systems and operations Assessment criteria Weight (%) Competence in system development and system analysis 30 Competence in IT security and Data Communications 40 Knowledge in CIS, or experience in data sharing mechanisms 10 Understanding of financial sector systems and operations 15 Cost 5 Total 100 7.0 TIMETABLE This work is expected to be completed within 25 working days of commencement.