The Central Bank of Kenya (CBK) has announced plans to restructure credit standing of loan defaulters listed by Credit Reference Bureaus (CRB).
On Monday, November 14, CBK announced a new framework dubbed Credit Repair Framework in favor of mobile phone digital borrowers.
The new program was made possible by financial institutions that offer digital loans such as commercial banks, micro-finance banks and mortgage finance companies.
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“Through the Framework, the institutions will provide a discount of at least fifty percent of the non-performing mobile phone digital loans outstanding as at end 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 up to May 31, 2023, for the balance of the loan. Upon 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,” read the notice.
The framework will cover loans with a repayment period of 30 days or less and were offered by these institutions through mobile phones.
The program will run until May 31, 2023.
As earlier reported on WoK, Lenders will not deny any borrower a loan but charge them high interest rates if they default to make repayments should the Central Bank of Kenya approve the proposed credit framework.
This new proposal follows President William Ruto’s claims that lenders were denying Kenyans their products due to the credit rating framework that is focused on blacklisting defaulters.
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Currently, bad repayment reputation is the reason why most Kenyans are denied loans by lenders.
However, should the proposed frameworks pass, credit history, the habit to borrow from multiple lenders and type of job are among the factors that will determine how expensive lenders will charge borrowers.
This means a borrower’s credit history will be the cost of loans; those who repay their loans on time will enjoy low interest rates.
If the new framework is approved, Credit Reference Bureaus (CRBs) will still maintain credit scores for borrowers that will inform different lenders on interest rates to apply.