CBK Institutes Measures to Buffer Loan Borrowers From COVID-19
In light of the effect that the corona virus has had globally, leading to a slump on both the economic and health sectors, also referred to as Covid-19, the Central Bank of Kenya (CBK) has come up with six measures that will insulate customers of Kenyan commercial bank from the virus, as its effects are considered to be “severe.”
‘The CBK recommends safety measures that will apply for borrowers whose loans were up to date, as of March 2, 2020,” redas the statement issued on March 18th, 2020.
The measures include providing relief to borrowers on their personal loans based upon individual circumstances based upon their individual circumstances that has occured due to the corona virus pandemic; another measure is for commercial banks to have a one year review period for loan borrowers; to make it possible for Micro and Small Medium Enterprises (MSME’s) and corporate borrowers to contact their banks, so that the latter can assess and restructure their loans based on special circumstances that have been caused by the COVID-19 pandemic; commercial banks will shoulder the cost requisite to extend and restructure loans;
Waive the charges channelled through banking mobile digital platforms.
CBK also further emphasised that it will uphold the temporary waiver of transaction fees for mobile transactions for the next six days.
This was based on a meeting held between the banking regulator, telecommunication service provider, Safaricom and other industry players, which was held on March 16th 2020.
In a press conference that was held earlier this morning, the Cabinet Secretary (CS) of Health, Dr Mutahi Kagwe confirmed that since the discovery of the first case of the disease last Friday, there are currently 18 cases of people having coronavirus admitted at Mbagathi Hospital, with seven having screened, while the other 11 others are considered to be negative.
The CBK announcement comes even after four days ago, the Digital Lenders Association of Kenya (DLAK) stated that they are shying away from lending to the youth due to their high default risk.
Data from the Kenya National Bureau of Statistics (KNBS) states that there are more than 19 million Kenyans who are borrowing from over 50 mobile applications.
The peculiarity among Kenyan borrowers is that at least 40 percent of them tend to borrow from a variety of mobile banking apps, often at a detriment to the victims because then the are unable to pay the debts either on time or the interest rate required.
According to a study by the World Bank, there are 380,000 Kenyans who have defaulted from loans issued through mobile loans apps.
Delving deeper, the study found that other than using the money borrowed to pay for utilities or repaying other loans, the borrowers tend to use the loans for betting online.
Consequently, by 2018, there were over 500,000 loan borrowers who had been blacklisted for defaulting on their mobile loans.
Various interest groups have decried the way that MSME’s have been locked out of funding opportunities by commercial banks that would be important to lead to their growth. In 2016, the Banking Act, capped interest rates on loans at four percent above the Central Bank Rate of ten percent.
But commercial banks then refused to lend to MSME’s stating that they had a high default risk.
This counter-reaction led to the repeal of the interest rate law last year in November by the National Assembly. President Kenyatta further added his voice to the matter when he stated that he would be unable to assent to the legislation because it would result in lesser economic growth, as SME’s contribute 80 percent to the country’s Gross Domestic Growth (GDP).
Another voice has been that of the International Monetary Fund (IMF), which had noted that, paradoxically, the removal rate cap law, Kenya stood a chance of a Kshs 1.5 billion credit facility, requisite to protect the country from volatility.