NAIROBI, Kenya, November 14 – Financial institutions will grant a discount of at least 50%, or about 15 billion shillings, on outstanding digital non-performing loans at the end of October, in a bid to improve borrowers’ creditworthiness .
Institutions will then enter into a repayment plan with borrowers for a period up to May 31, 2023, for the balance of the loan.
The move will see institutions upgrade the creditworthiness of borrowers from non-performing to performing, thereby improving their creditworthiness.
This is part of the credit repair framework deployed by commercial banks, microfinance banks and mortgage finance companies.
The Central Bank of Kenya (CBK) noted that at the expiration of the framework, the creditworthiness of borrowers with respect to loans will depend on their repayment performance over the six-month period.
“The framework aims to improve the creditworthiness of mobile digital borrowers whose loans are non-performing and have been reported as such to credit reference bureaus (CRBs),” the CBK said.
The apex bank noted that the framework will cover loans with a repayment period of 30 days or less.
The total value of non-performing loans is estimated at Sh30 billion, or 0.8% of the banking sector’s gross loan portfolio of Sh3.6 trillion at end-October 2022.
“It is expected that the framework will enable more than 4.2 million digital mobile phone borrowers, rated negatively with CRBs, to repair their credit rating,” the CBK said.
Borrowers to be covered under the framework are mainly in the retail and microenterprise sectors and have been hit hard by the Covid-19 pandemic.
For some of the borrowers covered, the adverse effects of the pandemic persist.
Accordingly, the framework should enable this segment of borrowers to access credit and other financial services as they rebuild their lives and livelihoods.
The CBK reminded the public to honor its payment obligations on its credit facilities when they come due.