Borrowers snub Ruto’s 50pc digital loan repayment offer
Dr Samuel Tiriongo, director of the Centre for Research on Financial Markets and Policy at the Kenya Bankers Association, speaks during the launch of the 2023 Kenya banking industry report in Nairobi in early June. He revealed on Thursday, August 24, that less than five percent of digital loans have been repaid despite a government offer to waive half of the debt for borrowers.
Nearly all borrowers have failed to repay mobile phone loans, despite being offered a 50 per cent haircut on the Sh30 billion in defaulted loans, undermining one of President William Ruto's pro-mobile phone campaigns after he took office last year.
Just two months after President Ruto was sworn in, the Central Bank of Kenya (CBK) ordered commercial and microfinance banks and mortgage finance companies to waive 50 per cent of Sh30 billion in loans that some 4.2 million Kenyans had defaulted on after borrowing through digital channels.
The discount only affected loans that had a 30-day repayment period and were non-performing by the end of October 2022, with affected borrowers given six months, until May 31, 2023, to pay only half of what they owed to lenders.
But bankers have now revealed that less than five per cent of the loans had been regularised by the end of May. This means that less than Sh1.5 billion of the total Sh30 billion of non-performing loans had been cleared and that about four million borrowers failed to take advantage of the initiative.
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"Less than five per cent of these loans were actually regularised in line with the policy because many customers were not willing to take the 50 per cent discount on the basis that they had to repay 50 per cent within the six months," said Dr Samuel Tiriongo, director of the Centre for Research on Financial Markets and Policy at the Kenya Bankers Association (KBA).
Dr Tiriongo said most borrowers expressed concern that lenders would perceive them as risky in the future if they benefited from the haircut, leading to massive withdrawals from the scheme.
Speaking during the launch of the State of the Banking Industry Report, 2023 on Wednesday, KBA said banks had sent messages to individual borrowers informing them to repay half of the loans they owed in line with the CBK directive.
"For subsequent engagement with borrowers, it meant that banks now had to look at those customers differently because if they had benefited from a 50 per cent haircut on their facilities, it meant they had to be looked at differently. So for many customers there was no movement in terms of valuing the 50 per cent discount and therefore there was very little uptake of this credit repair framework," he said.
However, the association also believes that most lenders were upset by the CBK's announcement, which had an impact on lending through digital channels, as many feared that the government would make similar pronouncements at their expense.
KBA cited the framework as among notable policy developments that have affected the credit market over the past year.
