The Central Bank of Kenya (CBK) has directed all commercial banks, Microfinance, and mortgage institutions to write off 50 percent of all mobile phone loans.
In a press release by the regulator, the lenders will enter into a repayment plan for the remaining fraction of loans for the six-month period ending May 30, 2023.
“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,” said the CBK.
The process, dubbed Credit Repair Framework, will see the lenders forgive a whooping Ksh.15 billion.
Non-performing loans on mobile loans according to the CBK currently stands at Ksh.30 billion, equivalent to 0.8 percent of the gross banking sector loan portfolio of Ksh.3.6 trillion as of October 2022.
All borrowers covered in the write off, and whose loans were non-performing will be upgraded to performing.
The CBK seeks to help millions of Kenyans still struggling to recover from the coronavirus shocks since its advent in March 2020.
“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 Kenyan government, under President William Ruto’s Kenya Kwanza administration, is implanting its campaign promise to ensure an all-round financial inclusion in a cash-strapped economy amid the high cost of credit.
The credit repair framework comes three days after CBK directed the CRBs to make amends to the Credit Information Sharing (CIS) mechanism.
The changes include a standard statement at the top of every credit report which according to CBK shall “indicate that a customer’s credit score should not be used as the sole reason by a lender to deny customer a loan.”
This approach will enable appropriate access to affordable credit by borrowers, especially Micro, Small and Medium-sized Enterprises (MSMEs).