Hope as CBK sets out to lift 4.2 million borrowers from lenders’ bad books
The Central Bank of Kenya (CBK) has set out to improve the credit score for millions of digital loan borrowers whose loans are in default.
In a plan dubbed Credit Repair Framework (the Framework), the CBK targets to cover loans with a repayment period of 30 days or less that were offered by commercial banks, microfinance banks, and mortgage finance companies through mobile phones.
The Framework seeks to improve the credit standing of mobile phone digital borrowers whose loans are non-performing and have been reported as such to Credit Reference Bureaus (CRBs).
The initiative is set to expire on May 31, next year and the concerned institutions will contact their eligible borrowers to provide them with further details of the Framework, the CBK said.
“Through the Framework, the institutions will provide a discount of at least fifty percent of the non-performing mobile phone digital loans outstanding as at end October 2022, and update the borrowers’ credit standing from non-performing to performing,” the banking sector regulator explained.
“The institution will then enter into a repayment plan with the borrowers for a period 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.”
It is projected that roughly 4.2 million mobile phone digital borrowers, who have been adversely listed with CRBs, will have a window to reset their their credit standing favourably.
Read also: NBK secures Sh1.1 billion loan guarantee scheme to boost SMEs’ credit uptake
The target borrowers account for an approximate Kes30 billion in loans, or 0.8 percent of the gross banking sector loan portfolio of Kes3.6 trillion at end October 2022.
“The borrowers covered in the Framework are mainly in the personal and microenterprises sectors and were adversely impacted by the COVID-19 pandemic,” added CBK in a statement.
The Covid-19 pandemic economic shocks led to massive loss of jobs and livelihoods following the closure of businesses across many sectors.
Two years down the line, the adverse effects of the pandemic continue to linger, worsened by runaway inflation in the country, leaving millions of borrowers unable to resume servicing of their debts.
“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,” said CBK.
Last week, the CBK announced it has started taking concrete actions to address the current Credit Information Sharing (CIS) framework which President William Ruto has severally termed punitive to millions of borrowers in Kenya.
The banking industry watchdog said it is working with CRBs to align their credit scoring models to best practices with a view of enhancing the quality of their credit reports.
It added that it is also liaising with commercial banks on risk-based credit pricing to provide borrowers, especially the micro, small and medium-sized enterprises (MSMEs) access to appropriately priced loan products.
Further, CBK counseled borrowers to always get in touch with their lenders in the event they face challenges while servicing their loans.
