KENYA: Banks to give 4.2m mobile borrowers 50% discount on unpaid digital loans

The Central Bank of Kenya (CBK) has said banks will give 4.2 million mobile borrowers at least 50 percent discount on defaulted loans to encourage repayment.

The plan dubbed Credit Repair Framework will see commercial banks and microfinance institutions give up at least Sh15 billion and give businesses and individuals a chance to restore their credit score.

CBK said yesterday that banks will reach out to defaulters who were mostly affected by Covid-19 and enter new repayment plans for the outstanding loan balance. The repayment period under the new programme will expire on May 31, 2023.

"It is anticipated that the Framework will enable over 4.2 million mobile phone digital borrowers, adversely listed with CRBs, to repair their credit standing. The total value is approximately Sh30 billion, equivalent to 0.8 percent of the gross banking sector loan portfolio of Sh3.6 trillion at end of October 2022," CBK said in a statement.

The new plan will only cover loans with repayment periods of 30 days or less, CBK added.

The economic fallout from the Covid-19 pandemic and the rising cost of living has pushed Kenyans to short-term mobile phone loans to fund their day-to-day needs.

However, this has come at a cost as some have failed to repay as the loans fall due, leading to mounting black listings on CRBs.

"CBK reminds the public to honour their payment obligations on their credit facilities when they fall due. When borrowers experience challenges in repaying their loans, they should proactively engage their lenders," CBK noted.

Data from the country’s three CRBs showed that borrowers who had defaulted on digital loans of less than Sh1,000 made up the bulk of 4.6 million borrowers blacklisted at the time.

The rising number of blacklisted loan accounts has reduced the chances of millions of Kenyans being able to borrow more to grow their businesses or for projects.

In September, President William Ruto mooted plans to reform the country’s credit market and said more than four million loan defaulters will be removed from Credit Reference Bureau (CRB) blacklists.

The President has directed the Central Bank of Kenya (CBK) to abolish the blacklisting of borrowers and instead have a scoring method where defaulters will get a low grade instead of being shut out of the financial system.