In a surprising turn of events, an offer by President William Ruto to alleviate the burden of defaulted digital loans has been met with widespread indifference from borrowers. Despite the promise of a 50 percent reduction on a staggering Sh30 billion worth of defaulted loans, an overwhelming majority of borrowers have failed to seize this opportunity. This development serves as a setback to one of President Ruto’s initiatives aimed at bolstering mobile phone-based financial services.

The backdrop to this scenario is rooted in the aftermath of President Ruto’s assumption of office. Shortly after his inauguration, the Central Bank of Kenya (CBK) mandated commercial banks, microfinance institutions, and mortgage finance companies to pardon half of the Sh30 billion debt that had accumulated from loans taken out through digital platforms. These loans, which had a 30-day repayment window, had turned non-performing by the close of October 2022, prompting the intervention.

The stipulated discount was applicable to borrowers who fell within the criteria, granting them a six-month extension until May 31, 2023, to settle only 50 percent of their outstanding dues to the lenders. However, recent revelations by banking officials paint a starkly different picture. As of the end of May, it came to light that a mere fraction—less than five percent—of the loans had been rectified in accordance with the CBK’s policy. This translates to an amount of less than Sh1.5 billion out of the colossal Sh30 billion in non-performing loans being successfully repaid. Astonishingly, around four million borrowers chose not to capitalize on this financial amnesty.

Dr. Samuel Tiriongo, the Director of the Centre for Research on Financial Markets and Policy at the Kenya Bankers Association (KBA), shared insights into this puzzling phenomenon. He explained that the tepid response was largely driven by borrowers’ apprehensions. Many were concerned that availing the 50 percent discount might adversely label them as risky customers in the eyes of lenders in the future. This concern, in turn, led to a reluctance to participate, ultimately undermining the scheme’s efficacy.

Dr. Tiriongo expounded during the launch of the State of the Banking Industry Report, 2023, hosted by the KBA. The association revealed that banks had diligently communicated with individual borrowers, notifying them of the opportunity to settle half of their debt in accordance with the CBK’s directive. However, this approach seemed to have minimal impact as borrowers grappled with the potential consequences of accepting the discount.

Furthermore, the KBA speculated that the CBK’s intervention had inadvertently ruffled feathers within the lending landscape. Many financial institutions were reportedly disconcerted by the announcement, fearing potential future governmental interventions that could adversely affect their operations.

This turn of events stands as a testament to the intricate dynamics at play in the realm of digital lending and financial policy. President Ruto’s well-intentioned offer, aimed at easing the burden on borrowers and reinvigorating the digital lending sector, has encountered unexpected challenges. It serves as a reminder that the interplay of financial behavior, perceptions, and policy intricacies can have profound implications on the outcomes of even the most well-conceived initiatives.

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