About 1.8 million digital loan defaulters have got a clean credit rating after they took advantage of a six-month credit repair backed by the Central Bank of Kenya (CBK) to reset their history.
Metropol Credit Reference Bureau (CRB), which holds a database of more than 20 million borrowers, says the number of beneficiaries from the programme represents about 44 percent of the more than 4.2 million accounts targeted by the initiative.
“44 percent of the people who were already negatively listed and who were largely excluded from borrowing from other financial institutions took advantage of the credit repair framework and paid off the facilities and are now in good books with an improved credit score,” Metropol CRB CEO Gideon Kipyakwai told the Business Daily.
Last November, the CBK directed financial institutions including commercial and microfinance banks to provide a discount of at least 50 percent of the non-performing phone loans that were outstanding at the end of October 2022.
The institutions updated the borrowers' credit standing from non-performing to performing and restructured the balance of the outstanding loans that were valued at Sh15 billion after the 50 percent discount for a term up to May 31, 2023.
Financial institutions had previously written off the balances while fully providing for the loss under IFRS 9 standards.
In the aftermath of the credit repair framework, NCBA and Absa Bank Kenya revealed write-offs amounting to Sh11 billion and Sh3.2 billion respectively from irrecoverable digital loans with the framework allowing them to recover 50 percent of the balances or Sh7.1 billion.
The credit repair programme was envisioned as allowing negatively listed borrowers to access new financing from institutions, including the recently launched Financial Inclusivity Fund which is popularly referred to as the Hustler Fund.
Gideon Kipwakwai argues the credit repair has helped borrowers with the inability but willingness to pay off their loans to obtain improved credit ratings.
“More importantly, the 44 percent is a statement to say that those who are really in hardships pay up when given a chance,” he added.
An approximate Sh30 billion represented defaults from loan disbursements through digital means and was equivalent to 0.8 percent of the banking sector loan portfolio at the end of October 2022.
The framework marked a continuation of Covid-19 support measures by the government and was targeted at borrowers in personal and micro-enterprise sectors that had been adversely impacted.
Additional data from Metropol CRB shows the majority of borrowers at 60 percent have excellent credit scores of between 600 and 900 while 30 percent have credit scores in the middle at between 400 and 600.
