Kenya’s central bank has launched a new program called the Credit Repair Program. This program will help to “improve the creditworthiness of mobile phone digital borrowers” who had found it difficult to repay their loans.
This newly-introduced program will require commercial, microfinance, and mortgage banks to cut all outstanding short-term (30-day) loans by 50 percent. This slash will go backward from the end of October. The remaining 50 percent will be paid in installments until May next year.
According to Kenya’s apex bank, about 4.2 million digital borrowers will be able to repair their creditworthiness via the program and lenders can recover about 30 billion Kenyan shillings (about $246 million), or the equivalent of less than 1 percent of gross banking sector loans.
The latest development follows after the central bank requested that credit reference bureaus add a note stating that credit reports are not to be used as the sole basis for denying loan applications last week.
Under the country’s President Willian Ruto’s administration, access to credit has been a major priority. He condemned the process that lenders used to determine who to provide loans to during his swearing-in ceremony. “Our starting point is to shift the CRB framework from its current practice of arbitrary, punitive, all-or-nothing blacklisting of borrowers that denies borrowers credit,” he said. The President’s opinion on borrowing and providing loans has received several eye rolls and criticisms. Bankers and digital lenders think that delisting people coils lead to a high rate of unpaid loans, and may force lenders to drastically reduce lending and be very cautious of who to lend to; the exact opposite of what the President wants.
About two weeks after he was sworn in as President, the country’s leading telecommunication company Safaricom, and its partner banks slashed the daily charges for loans below Ksh1,000 ($8.29) from Fuliza, its short-term digital loan offering. At least 18 percent of Kenya’s population uses Fuliza to get short-term loans. The move was, therefore, seen as the onset of what would become a review of the country’s credit scoring system.
Kenya launched a Credit Information Sharing (CIS) framework in 2010 t allow lenders to share information about borrowing trends in the country. According to the central bank, the framework should be used to share “positive information” on loans that have been paid in full. This platform, however, has been used to share information on non-performing loans or loans that hadn’t been repaid by defaulters. In other words, the platform became a way to report defaulters.
The Credit Information Sharing (CIS) framework was updated with specific terms in 2020. This was to protect Kenyans from getting blacklisted. Under this update, the minimum amount to be considered as a non-performing loan was set at Ksh 1,000 ($8.29). Irrespective of this update, defaulters of small loans continued to get blacklisted. It was discovered by credit management company Metropolitan in September that six million Kenyans had been blacklisted from getting loans.
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