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Secondly, when you go to big shops you will find two prices displayed, the cash price and the credit price, you find the cash price is lower than the credit price and the reason is that the credit sale has factored into that price the time value of money so there is an interest that compensates the seller for staying out of money for that period. Over and above that there is also an additional margin all sellers put on credit sales which caters for risk taken and a reasonable profit for waiting for payments and enabling buyers to enjoy present consumption. So if you are doing business on credit you can generally get better margins than a person doing sales on a cash basis. Credit helps you to create a loyal pool of customers. If there is a kiosk near the place you stay and every time you pass by you buy a few products on cash the kiosk owner will never know who you are until the day you request goods on credit then the kiosk owner will begin to enquire information about who you are before deciding to give you the products. Credit trading is done on a relationship, cash never creates a relationship. Credit trading requires you to know your customer and on the basis of that knowledge you develop a relationship. If that relationship is well managed this customers become loyal to your business. Credit has been known to be a serious builder of customer loyalty. Finally Credit has a strategic angle to the busin ess, if you are in an industry where capacity is under-utilized, but the demand in the market is such that you can stretch terms from 30 to 60 days you will find that you can actually increase the capacity of your production from 60 to 80 days because by stretching the credit period there is increased demand for your product. One can therefore use credit as a strategy of ensuring that you manage production and demand of products. So people who have used and managed credit properly based on these four benefits find that they can be able to build their businesses and maintain growth by maintaining demand in a robust way. Giving Credit If you want to give credit you must answer three questions. If I give this person credit will they pay me back at all? You have put capital to produce the item, if you give 52 MAL22/18 ISSUE Credit is the oil that moves the economic engine and therefore everybody should be able to take advan- tage of credit facili- ties available in the market. We all must be able to know the upside of credit and the downside of cred- it. CRBs, as explained are poised to play an even bigger role in fi- nancial discipline and business stability. credit and don’t get paid back, you lose your capital; because the money that you have invested is being lost through the customers you are giving credit. The second question is if I give credit, will I be paid on time? Because you are losing the value of your money every time you get paid late and the later the payments the more value you lose then eventually your business begins to shrink because people are not paying you on time. This will happen even when you are running a profitable business. The last question to ask is what does it costs me to give this credit in terms of the processes. If you calculate the cost of giving that credit you will find it is a significant part and it eats into your profit and it consistently reduces the amount of profit that you can get and this simply means that you must be able to improve on your efficiency on how you give credit. 5 C’s of Credit Credit itself conforms to a science it’s not something that you can just wake up and say I want to give credit. Have you heard about the 5 C’s of Credit? The 5C’s of credit are the basis upon which credit worthiness is always assessed. These are Character, Capacity, Capital, Collateral, and Conditions. Character: Sometimes called credit history, the first C refers to a borrower’s reputation or track record for repaying debts. This information appears on the borrower’s credit reports. Capacity: Capacity measures a borrower’s ability to repay a loan by comparing income against recurring debts and assessing the borrower’s debt-to-income (DTI) ratio. Capital: Lenders also consider any capital the borrower puts toward a potential investment. A large capital contribution by the borrower decreases the chance of default. Collateral: Collateral can help a borrower secure loans. It gives the lender the assurance that if the borrower defaults on the loan, the lender can repossess the collateral. Conditions: The conditions of the loan, such as its interest rate and amount of principal, influence the lender’s desire to finance the borrower. Conditions refer to how a borrower intends to use the money. With this brief background to the rationale of credit transactions we are now ready to delve into the history of Credit Bureaus in Kenya and outline why they were necessary to underpin the commercial activity and why they are pivotal to trade development, both domestic and international. History of Credit Reference Bureaus Have you heard about Credit Reference Bureaus or CRBs? Credit Reference Bureaus are based on a mechanism where lenders’ and credit providers share information about their customers. Every bank gives information to the Credit Reference Bureau and every time you go to the bank to borrow, the place where the bank checks is the Credit Reference Bureau. So everybody who has ever borrowed has a Credit Reference Bureau profile. Today you can be able to get credit without going to the bank or without ever having a bank account. Before 2010 you had to go to the bank and open an account, have your photograph taken and you were told you have to run an account for six months before you get credit. What is the difference between pre 2010 and post 2010? Why is the bank today able to give you money without ever wanting to see your face? Because they know that whatever you take you will have to pay back. Now these are the developments that have taken place in this country and it brings me to discuss what our business today is. A credit reference bureau is based on a