At least 4.2 million Kenyans who failed to pay Sh30 billion they borrowed from banks, microfinance and mortgage finance companies digitally have been handed a relief, after the Central Bank of Kenya (CBK) rolled out a framework to slash the burden by half.
The CBK on Monday said the credit repair framework, to be undertaken by commercial and microfinance banks, and mortgage finance companies until end of May 2023, will see the lenders forego at least Sh15 billion the borrowers owe them as they discount the loans by 50 per cent.
“Through the framework, the institutions will provide a discount of at least 50 per cent of the non-performing digital loans outstanding as at end of October 2022, and update the borrowers credit standing from non-performing to performing.
“The institution will then enter into a repayment plan with the borrowers for a period of up to May 31, 2023, for the balance of the loan. Upon expiry of the framework, the credit standing of the borrowers with respect to these loans will depend on their repayment performance during the six-month period,” the CBK stated.
The CBK said objective of the Framework is to improve the credit standing of mobile phones digital borrowers who had been reported to Credit Reference Bureaus (CRBs), by account of failing to service loans they borrowed using mobile phones.
It covers all loans with a repayment period of 30 days and below that were listed as non-performing by end of October 2022.
“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 per cent of the gross banking sector loan portfolio of Sh3.6 trillion at end of October 2022,” the financial services sector regulator stated.
The CBK said most of the affected borrowers were individuals and small businesses that were heavily impacted by the Covid-19 pandemic, which increased their inability to pay after they lost jobs and businesses.
“The adverse effects of the pandemic continue to linger for the covered borrowers. Accordingly, the Framework is expected to enable this segment of borrowers to access credit and other financial services as they rebuild their lives and livelihoods,” the CBK stated.
The framework will expire on May 31, 2023 and meanwhile the lenders have been asked to contact the borrowers and provide them with further details of the framework.