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Reprieve for defaulters listed at CRB as Ruto delivers on promise

Expiry of credit standing will depend on repayment performance in a six-month period. [iStockphoto]

Close to 4.2 million Kenyans negatively listed at the Credit Reference Bureaus (CRBs) will soon be removed from the list of defaulters as President William Ruto moves to actualise one of his campaign pledges.

On Monday the Central Bank of Kenya unveiled the credit repair framework that will see commercial banks, microfinance banks and mortgage finance banks write off at least 50 per cent of the outstanding digital loans that had been non-performing by end of October 2022. 

With the outstanding balance being estimated at Sh30 billion, the write-off will see the loss of at least Sh15 billion worth of bad loans, a move that is likely to dent their bottom line.

The banks will also update the borrowers' standings from non-performing to performing, which means that they will now be able to access credit from other lenders.

“The institution will then enter into a repayment plan with the borrowers for a period of up to May 31, 2023, for the balance of the loan,” reads part of the statement from CBK.

It is a move that has elicited mixed reactions with some analysts fearing that it will hurt banks even as it emboldens serial defaulters whose activities had been checked by CRBs.

Habil Olaka, the Chief Executive Officer of Kenya Bankers Association, a lobby for lenders, said that while he could not speculate on the impact the framework will have on the banking industry, there would be losses.

“It is obvious, the banks are losing,” said Olaka on the proposed discount on the outstanding balance.

Some of the Digital Lenders’ Associations, through their umbrella body, Digital Lenders Association of Kenya (DLAK), have decried the fact that by working only with regulated mobile money lenders, they have sidelined several of their members, who have lost up to Sh8 billion to defaulters.

The framework is aimed at repairing the credit history of some 4.2 million borrowers from digital platforms with loan terms of 30 days and below.

These are micro-loans offered by commercial banks, microfinance banks and mortgage finance banks, and are valued at Sh30 billion.

Thus, the framework will cover such digital loans as KCB-MPESA, M-Shwari and Fuliza, all of which are owned by Safaricom, a telco, with various commercial banks.

The framework will expire on May 31, 2023, and will discount at least half of the outstanding digital loans that were non-performing as of the end of October 2022.

This will be the second time borrowers are being given a reprieve from being listed at the CRB, the first time being in April 2020, in what was aimed at helping individuals and businesses negatively affected by the Covid-19 pandemic.

The credit repair framework, CBK said, will also benefit those who have been negatively impacted by the effects of the pandemic.

Expiry of credit standing will depend on repayment performance in the six-month period. This development fits well with President Ruto’s agenda of lifting the millions of hustlers, and small businesses plying their trade in the treacherous informal sector, to get loans in order to start or expand their businesses.

“I am very happy that between four and five million Kenyans will by the beginning of November, be out of blacklisting,” the President said in September, when the stakeholders of Fuliza, a mobile money overdraft facility, resolved to reduce the fees they charged by almost half.

The product is a partnership between leading telco Safaricom and its banking partners NCBA and KCB.