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CBK rolling out credit repair framework by financial institutions

The Central Bank of Kenya (CBK) has announced the roll out of a Credit Repair Framework by commercial banks, microfinance banks and mortgage finance companies.

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 limited framework will expire on May 31, 2023,” read the press statement sent to news rooms, adding that the concerned institutions will contact their eligible borrowers to provide them with further details of the framework.

Through the framework, the statement continues, the institutions will provide a discount of at least 50 percent of the non-performing mobile phone digital loans outstanding as at the end of October 2022, and update the borrowers’ credit standing from non-performing to performing.

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.

Further, upon the 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.

According to the statement, the framework will cover loans with a repayment period of 30 days or less that were offered by these institutions 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 percent of the gross banking sector loan portfolio of Ksh.3.6 trillion at the end of October 2022,” the statement stressed.

The statement disclosed that the borrowers covered in the framework are mainly in the personal and micro-enterprise sectors that were adversely impacted by the Covid-19 pandemic.

“Their lives and livelihoods were severely impacted by the pandemic through inter-alia loss of employment and closure of their micro-enterprises,” explained the statement.

Accordingly, the framework is expected to enable this segment of borrowers to access credit and other financial services as they rebuild their lives and livelihoods even though the adverse effects of the pandemic continue to linger for the covered borrowers.

CBK has reminded the public to honor their payment obligations on their credit facilities when they fall due which will enable them to build a good credit history based on their payment behavior and thereby obtain loans at a better rate.

CBK also advised borrowers who experience challenges in repaying their loans to proactively engage their lenders.

These are mobile phone loan borrowers from commercial banks regulated under the Banking Act and microfinance banks regulated under the Microfinance Act by CBK. However, the digital loan borrowers from unregulated Digital Credit Providers were expunged from the CRBs in April 2020.

By Michael Omondi

 

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