End of CBK Relief Measures: What They Mean for You

When the Covid-19 pandemic first hit the country in March 2020, the government put in place relief measures to cushion borrowers hard hit by the pandemic. These included allowing for flexibility in repayment of loans, extension of payment periods and loan restructuring.

However, the relief measures were to last only a period of one year, which ended on March 2, 2021, as announced by the Central Bank of Kenya (CBK). Since, normal standards for loan application and repayment have resumed.

‍What Does This Mean?

If you had taken a loan before the pandemic struck, and the relief measures made allowed you to halt repayment for the past year, your loan may now be in arrears. You do, however, have three months (until June 3, 2021) to have a sit-down with your bank and agree on a new payment plan that will also cover the arrears.

Furthermore, the temporary suspension of the listing of loan defaulters with Credit Reference Bureaus (CRBs) - the three in Kenya (Metropol, TransUnion and Creditinfo International) - also lapsed on March 2.

Once blacklisted, you could be barred from borrowing money from money lending institutions for a period of between five to seven years depending on the lender's credit assessment approach - this is in case you do not repay your loan, otherwise once you clear your balance you can be removed from the blacklist.  

To clear your name from the CRB blacklist, you will  have to first repay your defaulted loan, then the lender that submitted your name to CRB will ask them to clear your name. To obtain a CRB clearance certificate, you will have to part with a Ksh2,200 processing fee.

It is important to note that in October 2020, a total of 337 unregulated digital mobile lenders and micro financiers including Tala and Branch were barred by the CBK from listing loan defaulters - they all are yet to be let back into the credit information sharing platform.

‍What Happens If You are Unable to Pay?

This depends on whether you took a secured on unsecured loan. For a secured loan, the borrower has to offer collateral - such as a car, home, title deed etc - that the lender can take possession of your property if you fail to pay.

For unsecured loans such as student loans, credit cards and personal loans, the borrower doesn’t offer any collateral, meaning the lender cannot automatically take possession of your property.

If you default on a secured loan, you do not have to wait until it gets ugly. Once you realise a probability of falling behind on your repayments, the best thing to do is to try and renegotiate the loan terms with the bank.

Defaulting on a loan means you have not made repayments for a certain period of time. Luckily, most lenders will typically allow you a grace period before applying penalties after you have missed one repayment. This period is called delinquency - it is the time you should be contacting the lender to avoid getting into default (when penalties apply), or cover the missed payments.  

Being in default means your credit score is reduced and your ability to get credit in future is impacted. For a secured personal or business loan, the possibility of asset seizure is high.

If it was unsecured, you are looking at the possibility of a lawsuit that could lead to revenue or salary garnishment (i.e. a court can order that the lender be receiving money from your wages or revenue such as rental income).

For a mortgage default, you are looking at a home foreclosure (i.e. the bank seizes the home and puts it up for sale to recover the owed amount). If you have an auto (car) loan, then chances are the bank or auto dealer will repossess the car.

That is why it is in your best interests to contact your lender in good time, the moment you realise you are no longer able to make your repayments on time.

Renegotiating means both the lender and the borrower draft new loan terms. This could include lowering interest rates, or stretching the loan repayment period, or both.

The lender may also agree to ease or even suspend your repayments until you are stable again, for example, when you are undergoing a temporary hardship such as low business due to lockdowns and curfews.

If you have a Sacco loan, you can also negotiate for better terms. You also did provide guarantors as collateral to secure a Sacco loan. In the event that you default, the Sacco can choose to collect the owed amount from your guarantors.

Wrapping Up

With the Central Bank of Kenya (CBK) lifting the relief measures meant to cushion borrowers whose cash flow was impacted by Covid-19, if you have an outstanding loan then you have to readjust to the ‘new normal’ and be wary of the risk of being in default.

The interest rates might not rise as at now, given that in March, the CBK monetary policy committee maintained the bank rate 7.00%, but the banks are not obligated to maintain a loan restructuring plan and all lenders are now allowed to blacklist you on the CRBs.

With the imposition of a five-county lockdown late last month, thousands of businesses have been affected and your income whether you are an entrepreneur or salaried employee will most likely take a hit.

As such, understanding that you can negotiate with your bank for more lenient repayment terms, the consequences of not doing so and the realization that lenders now have the discretion of allowing or rejecting your request is paramount.

So, be proactive and do what’s right for your financial journey during these difficult times.

At Money254, our expert team is working hard to bring you the latest and most relevant financial information in Kenya to enable you make the right choices. Our personal loans portal allows you to find and compare the available personal loans and find the terms and interest rates that match your needs.