About 4.2 million loan defaulters or rather the ones who failed to pay their loans back in agreed time will be cleared from the Credit Reference Bureau CRB blacklist under the Central Bank of Kenya credit repair framework which intends to replace the current credit reference system to a credit score formula which rates a borrower based on how efficiently they repay their loans, whether good or poor
“Lenders are now being told that the credit bureau system should be used not to deny borrowers loans but to determine the price and terms that one can get money on.” Metropol CEO Sam Omukoko once said.
Under the new scheme, lenders will enjoy 50 percent waiver on outstanding non-performing mobile phones loans outstanding as at the end of October 2022. The lender will then enter into a repayment plan with the borrowers for a period of 6 months up to May 31 st next year for the balance of the loan. Upon the expiry of the 6 months period, the credit standing of the borrowers with respect to the loan will depend on their repayment performance.
The move comes after the President directed the CBK to abolish the blacklisting of defaulters and instead have a score method where defaulters will get a lower grade of loan instead of being blocked from the financial system completely and not allowed to borrow again.
“We support CRBs as a mechanism of instilling financial discipline in our financial sector. What we are asking and I think we are on the same page on this and I have had a long conversation with the Governor. What we are asking is we don’t want credit listing to be an all or nothing, in or out engagement. We want credit listing to be a facility that gives everybody a chance to be their best.” President William Ruto said.
The directive by the CBK means for example, if a person acquired a loan of 20,000 shillings to be repaid in 30 days but defaulted, then the individual will be required to pay 10000 shillings over a period of 6 months to be removed from the CRB Database or blacklist. The new payment model will cover loans with payment periods of 30 days or less and were offered by different lending institutions through mobile phones or digitally.
The total value of the non-performing loans by digital lenders is estimated to stand at 30 billion shillings, as at the end of October 2022. The framework will allow those locked out of the financial system to be allowed to borrow again.
By Calvin Angatia