Despite the inability to repay their loans, many Kenyans are willing to pay off their debt
By Antony Mutunga
During the pandemic, many businesses witnessed reduced profits and losses, some closed down while others were forced to lay off workers. This resulted in many relying on debt. As the pandemic continued on, many people ended up defaulting on their loans. As the country got back into recovery, many of these people were left stranded as they lacked the finance to repay their loans. Fast forward to 2023, and almost half of the digital loan defaulters have been able to clear their loans and acquire a clean credit rating.
This has been as a result of the credit repair backed by the Central Bank of Kenya (CBK). Last year the CBK direct financial institutions to provide a discount of 50% of the non-performing phone loans that were outstanding at the end of October 2022. This resulted in about 1.8 million digital loan defaulters receiving a clear credit rating.
According to data from Metropol Credit Reference Bureau (CRB), the number of people who benefited from the credit repair programme was about 44% of the over 4.2 million accounts that were targeted. The move by the government was to ensure that the negatively listed could be able to access new financing from institutions, including the recently launched hustler fund. It was 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.
According to Gideon Kipwakwai, Metropol Credit Reference Bureau CEO, the credit repair has helped borrowers with the inability, but willingness to pay off their loans to obtain improved credit ratings.
“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. More importantly, this is a statement to say that those who are really in hardships pay up when given a chance,” Kipwakwai said.
He added that the bulk of Kenyans, with the right incentive, would be able to clear their loans and get positive ratings.
Financial institutions had previously written off the balances while fully providing for the loss under IFRS 9 standards. At the end of October 2022, about 30 billion or 0.8% of the banking sector loan portfolio at the time represented defaults from loan disbursements through digital means.
