Parliament has thrown its weight behind a proposal that could spare millions of Kenyans from ballooning loan repayments by extending legal limits on interest charged by digital lenders, Saccos, microfinance institutions and other non-bank lenders.
If adopted, the changes would ensure borrowers are not required to pay interest that is higher than the amount they borrowed, bringing similar protection already available to customers of commercial banks.
The proposal stems from a petition that was unanimously adopted by the National Assembly Public Petitions Committee, which is now calling for amendments to the Consumer Protection Act to widen the application of the in deplume rule beyond banks.
The petition, presented by Allen Waiyaki Gichuhi, seeks to shield borrowers from excessive interest charges, prevent debts from increasing endlessly after default and encourage fair lending practices across the financial sector.
Committee chairperson Runyenjes MP Muchangi Karemba said many Kenyans seeking financial assistance have ended up losing their property and livelihoods because of lending terms that place an unfair burden on borrowers.
“We must bring to an end the exploitation of the many Kenyans who turn to these lending institutions seeking financial assistance, only to end up losing even the little they have through such exploitation,” Karemba said.
The committee wants the Consumer Protection Act (Cap 501) amended to include the in duplum rule, which limits the amount of interest that can be recovered on a loan in default to the value of the outstanding principal.
Under the proposed law, a borrower who defaults on a Sh10,000 loan would not be expected to pay more than Sh10,000 in interest, preventing unpaid loans from growing into overwhelming debts.
Members of the committee noted that the protection is currently provided under Section 44A of the Banking Act but only applies to institutions regulated under that law. As a result, borrowers using digital credit providers, Saccos, microfinance institutions and other lenders remain outside the protection offered by the existing legislation.
The report says many Kenyans, especially those operating in the informal sector and micro, small and medium-sized enterprises (MSMEs), depend on non-bank lenders because accessing loans from commercial banks is often difficult.
“The Committee recommends that the Consumer Protection Act, Cap 501, be amended to entrench the in duplum rule,” the report states.
According to the committee, extending the legal safeguard would address a gap in the law and create equal protection for all borrowers regardless of the type of institution providing credit.
The report also points to different court decisions on how the in duplum rule should be interpreted, including whether it applies before or after a loan is restructured and whether penalties should be treated as part of the interest charged.
It says the lack of clarity has affected confidence in the financial sector while raising concerns about consumer rights protected under Article 46 of the Constitution.
While contributing to debate on the report, Marakwet West MP Timothy Kipchumba accused some informal lenders of imposing harsh charges and using intimidating debt recovery methods against borrowers who fail to repay on time.
“These institutions exploit our people. They impose endless accumulation of interest and harass our people left, right and centre,” Kipchumba said, adding that some borrowers risk losing vehicles or homes after defaulting on loans secured against such assets.
Kipipiri MP Wanjiku Muhia supported the proposal, saying changes in lending rates had personally affected her after she borrowed from a bank.
“I am a victim. I had taken a facility with an interest rate of 13 per cent. When the cap was done away with, the interest on the same loan was adjusted without even my approval,” Muhia said.
Should Parliament approve the proposed amendments, borrowers obtaining credit from digital lenders, Saccos, microfinance institutions and other non-bank lenders will receive the same statutory protection enjoyed by bank customers, limiting recoverable interest on defaulted loans and helping curb excessive borrowing costs.