The decision by banks to give borrowers who have defaulted on their digital loans a discount of at least 50 per cent on balances is a welcome attempt at finding a win-win solution to the credit crisis that has left more than four million accounts listed by credit reference bureaus (CRBs).
It will help banks and microfinance institutions to recover part of the money that they lent while individuals and businesses that borrowed will have an opportunity to repair their credit scores.
The economic fallout from Covid-19 and the rising cost of living has pushed many businesses to collapse. A new repayment plan would help those struggling under the weight of debt to reorganise and restructure their businesses.
However, borrowers should not treat this kind gesture as an excuse to borrow with the intention of not paying. Banks are businesses and non-performing loans can bring down banks, especially the small ones.
For its part, the government should wake up to the fact that a lot of people and businesses are struggling due to the hard economic times and implement policies that will make the economy bearable for everyone.
The banking regulator and commercial banks should also fast-track the plan to have other metrics in addition to a borrower’s credit score to offer appropriately priced credit.
Lenders' overreliance on credit listings has locked out a lot of businesses and individuals, impeding the growth of the private sector.
The rising number of blacklisted loan accounts has hampered the chances of millions of Kenyans being able to borrow more to grow their businesses or invest in projects.