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More than four million Kenyans who were locked out of lending by formal lenders have a new lifeline after the Central Bank of Kenya (CBK) asked banks to take a 50 per cent cut on their defaulted loans. This will not only come as good news to the affected borrowers, it will also stimulate the economy because they can become active in the digital money transfer space once again.

This move will not only free the millions whose only source of loans was shylocks after being listed with Credit Reference Bureaus (CRBs), but is also expected to repair the credit standing of the short-term borrowers, who have defaulted on an estimated Sh30 billion worth of loans. Should this move be actualised, the beneficiaries will have space to meet pressing financial obligations, including paying off debts and finance basic expenditures while keeping a clean lending history.

Coming on the back of a surge in the cost of living, the directive by the State is expected to enable this segment of borrowers to access credit and other financial services as they rebuild their lives and livelihoods. It is also a welcome call because the bulk of these borrowers form the biggest chunk of households at the bottom of the economic pyramid in Kenya, and this will be a reprieve to them during these hard economic times. However, clarity is still needed on how this framework will sit with the banks. Also, being that some of the digital lenders have not been cleared by CBK during a process meant to issue them fresh licenses, it will be important for the regulator to give directions on how these unregulated lenders will be incorporated in this new deal.

More importantly, the main concern with this framework is the fear that some borrowers might go back to their defaulting ways upon the expiry of the extension period. This is where Kenyans must recall that there is nothing like a free loan. Like taxes, all loans must be paid to ensure that the economy keeps growing. Loans are not grants and they should be repaid per the terms and on time, perhaps, President William Ruto’s clarion call that there is nothing like free money, and all the loans, including the Hustler Fund must be repaid.

Further, risks abound of another cycle of non-performing loans which risks impacting the operations of the affected financial institutions. This is something the new framework should guard against for the sake of the financial markets. If Kenyans can embrace the idea that loans are usually meant to support businesses growth, then they will always find it rightful to adhere to their debt obligations. However, where citizens fall into debt distress, then State interventions are welcome.