HIGH COURT RULES IN DUPLUM LAW APPLIES TO ALL LENDERS, INCLUDING MICROFINANCE FIRMS
The High Court has delivered a landmark ruling that strengthens borrower protection in Kenya, declaring that the in duplum rule applies to all lenders, including microfinance institutions.
In the case of Faulu Microfinance Bank Limited v Kilonzo, the court examined a dispute involving a loan of KSh 569,000 that had ballooned after the borrower defaulted. The lender, Faulu Microfinance Bank Limited, had moved to recover more than KSh 621,000, citing accumulated interest and charges.
Despite the case not being defended at the trial stage, the court took a firm position. It applied the in duplum rule, a legal principle that limits the amount of interest that can be charged on a non-performing loan, and reduced the recoverable amount to approximately KSh 145,000.
Faulu Microfinance Bank challenged the decision on appeal, arguing that the rule was only applicable to commercial banks and did not extend to microfinance institutions. However, the High Court dismissed this argument, stating that the in duplum rule is grounded in public policy and is intended to protect borrowers from excessive and punitive interest charges.
The court emphasized that the principle is not limited by the type of lender but by the need to ensure fairness in lending practices. It ruled that all financial institutions, regardless of their classification, are bound by the same standards when it comes to interest accrual on defaulted loans.
The decision sends a clear message to the financial sector that no lender can rely on technical distinctions to inflate debt indefinitely. It also offers relief to borrowers who have long complained about loans spiraling out of control due to unchecked interest and penalties.
Legal analysts say the ruling could have far-reaching implications, particularly in the microfinance sector, where high-interest lending has often been a point of concern. It is expected to influence how lenders structure their recovery processes and how courts handle similar disputes moving forward.
For borrowers, the judgment reinforces an important safeguard. Once a loan stops performing, the interest charged cannot exceed the principal amount, ensuring that debts remain within reasonable limits.
The ruling marks a significant step in balancing the relationship between lenders and borrowers, placing consumer protection at the center of Kenya’s financial and legal framework.
