The Central Bank of Kenya (CBK) has directed financial institutions to work with more than four million Kenyans who have been blacklisted for defaulting on loans to help them repair their credit profile.
CBK on Monday directed banks, microfinance and mortgage finance companies to write off at least Ksh.15 billion worth of digital loans, in a bid to help defaulters regain a favourable borrowing status. Defaulted digital loans are estimated at Ksh.30 billion, affecting approximately 4.2 million, according to CBK.
The plans were unveiled in a notice dated Monday, November 14 which also announced the comprehensive Credit Repair Framework guiding financial institutions to help defaulters improve their credit standing.
“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 Framework further advises lenders to enter into a repayment plan with borrowers for a period of six months, ending May 31, 2023. During this period, borrowers should show commitment by paying at least half of the outstanding loans before a review of their credit worthiness is done.
The Framework covers only loans issued through digital means and have a repayment period of 30 days or less. This move is expected to uplift the credit health of several individuals and small businesses whose operations were adversely affected by the Covid-19 pandemic but their credit worthiness is now impacted by outstanding loans.
“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.