Digital Borrowers Have Six Months to Improve Their Credit Standing According to CBK

Digital Borrowers Have Six Months to Improve Their Credit Standing According to CBK

Mobile loan defaulters who have been blacklisted by the Central Bank of Kenya (CBK) have until May 31, 2023, to pay off at least half of their remaining debt with financial lenders in order to rehabilitate their credit profiles.

This comes after the launch of the Credit Repair Framework by commercial banks, microfinance banks, and mortgage finance firms, which aims to rehabilitate the credit standing of mobile phone digital borrowers whose loans are non-performing and have been recorded as such to Credit Reference Bureaus (CRBs). According to CBK, the entire amount of outstanding loans is roughly Ksh 30 billion, or 0.8 percent of the gross banking sector loan portfolio, which is expected to total Ksh 3.6 trillion by the end of October 2022.

“Through the Framework, the institutions will provide a discount of at least 50pc of the non-performing mobile phone digital loans outstanding as at the end of October 2022, and update the borrower’s credit standing from non-performing to performing,” said CBK.

In order to repay the remaining balance of the loan, the regulator anticipates financial institutions to negotiate a repayment schedule with the borrowers that lasts until May 31, 2023. The framework focuses on loans provided by financial institutions via mobile phones with a 30-day or shorter repayment term.

“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,” added CBK.

According to CBK, the borrowers covered by the framework are primarily in the personal and microenterprise sectors and have had their livelihoods impacted by business closures or job losses due to the COVID-19 pandemic.

It is anticipated that those people and companies who will gain from the framework will start using credit cards and other financial services that their poor credit histories have previously prevented them from using. President William Ruto pledged to reform the procedure and make it less harsh after the Kenya Kwanza administration criticised CRBs for placing borrowers on their blacklists.