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Kenya's central bank provides 50% discount to digital defaulters

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The Central Bank of Kenya (CBK) has implemented a Credit Repair Framework to encourage mobile phone digital defaulters to repay and repair their credit standing.

Under the framework, at least 4.2 million Kenyans who failed to pay 30 billion Kenyan Shillings ($246 million) they borrowed from banks, microfinance and mortgage finance companies digitally will be handed relief and offered a 50% discount.

The banks are now required to have a new repayment plan for borrowers with non-performing accounts that have been reported to credit reference bureaus (CRBs). Digital lenders are forgoing at least KES15 billion ($123 million) in borrowers' debts.

In a statement, the CBK cited that most borrowers were citizens and small businesses that were heavily impacted by the COVID-19 pandemic, and who couldn't repay their debts because they lost their jobs and businesses.

"The adverse effects of the pandemic continue to linger for the covered borrowers. 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," the CBK continued.

Lending relief

The Credit Repair Framework comes at a time when the Kenyan government, along with digital lenders, agreed to develop a new credit score system as opposed to blacklisting customers.

In September, Kenyan President William Ruto announced that over 4 million defaulters on Safaricom's Fuliza overdraft product would be removed from the Credit Reference Bureau (CRB) and other blacklists from November this year.

The Kenyan government, through the CBK, is on a mission to clean up the digital lending industry to get rid of illegal operators.

In October, the country's Office of the Data Protection Commission (ODPC) said it would audit at least 40 digital lenders for data breaches against their customers.

Want to know more about mobile financial services in Africa? Check out our dedicated Fintech content channel here on Connecting Africa.

That came after, the CBK in September licensed only 10 digital lenders from a pool of 288 applicants who had applied for licenses in March.

The East African country has been at the forefront of providing digital financial services for over a decade. Before 2021, many digital lenders operated in the country without licenses and regulations, which increased unethical practices.

The CBK then began requiring all digital lenders to register for new licenses. Those that didn't meet the application requirements were barred from the industry.

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*Top image source: Image by wirestock on Freepik.

— Matshepo Sehloho, Associate Editor, Connecting Africa

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