Central Bank of Kenya (CBK) on Monday announced that commercial banks and microfinance institutions will accord 4.2 million mobile borrowers 50 per cent discount on their unpaid loans.

According to CBK, the initiative christened Credit Repair Framework is meant to encourage the mobile loan defaulters them to repay their obligation and mend their credit standing.

The financial regulator says the banks will now have to arrange fresh repayment plans with the borrowers who had been reported and listed at the Credit Reference Bureaus (CRBs).

They are expected to contact the defaulters who were mainly affected by the pandemic and devise new repayment plans to clear their outstanding loans on or before May 31, 2023.

“It is anticipated that the Framework will enable over 4.2 million mobile phone digital borrowers, adversely listed with CRBs, to repair their credit standing,” said CBK in the statement.

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It added: “The total value is approximately Sh30 billion, equivalent to 0.8 percent of the gross banking sector loan portfolio of Sh3.6 trillion at end of October 2022."

According to CBK, the banks are expected to reach out to the affected entities that were mainly forced by the pandemic and economic situation to seek loans from digital lenders.

“CBK reminds the public to honour their payment obligations on their credit facilities when they fall due. When borrowers experience challenges in repaying their loans, they should proactively engage their lenders,” added CBK.

Those who defaulted on less than Sh1,000 in mobile loans were the majority of the 4.6 million borrowers who were blacklisted, according to data from Kenya’s three CRBs.

Being blacklisted by CRBs denies one a chance to access mainstream financing meaning the 4.2 million Kenyans had been rendered unable to get funding for personal and business use.

President William Ruto in September said he was intent on changing Kenya’s credit market and in the process remove the millions of over blacklisted loan defaulters from the CRBs.

Dr Ruto ordered CBK headed by Dr Patrick Njoroge to get rid of the blacklisting and instead adopt a credit rating system where borrowers get loans based on their repayment records.