Kenyan commercial banks, microfinance banks and mortgage finance companies will be forced to write off digital loans, according to the Central Bank of Kenya (CBK) Credit Repair Framework.
The regulator has directed the lenders to provide a discount of at least 50 per cent of the non-performing mobile-phone digital loans outstanding as of the end of October 2022.
It is estimated that the framework targets at least 4.2 million Kenyans who failed to pay Ksh30 billion.
Borrowers covered in the write-offs will upgrade their credit standing to performing from non-performing.
“The institution will then enter into a repayment plan with the borrowers for a period up to May 1, 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 said in a statement released Monday.
“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 write-off exercise is expected to cover loans with a repayment period of 30 days or less, offered by lenders through mobile phones.
“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 Ksh.30 billion, equivalent to 0.8 per cent of the gross banking sector loan portfolio of Ksh.3.6 trillion at end October 2022,” the CBK added.
The CBK has described the credit repair framework as an additional initiative to support the recovery of businesses and households from the elongated effects of the COVID-19 pandemic.
The framework will expire on May 31, 2023.
On Friday, the CBK said it has begun reviewing the current credit reference framework in line with a presidential directive that seeks to open up the credit market by allowing defaulters to access loans.
“First, CBK has mandated all Credit Reference Bureaus to include a statement at the top of every credit report indicating that a customer’s credit score should not be used as the sole reason by a lender to deny a customer a loan.”
The regulator disclosed working with CRBs to align their credit scoring models to best practices to enhance the quality of their credit reports.
In addition, it is also working with banks on risk-based credit pricing to allow borrowers, particularly micro, small and medium-sized enterprises (MSMEs), to access appropriately priced credit.