A High Court ruling that cut a private lender's Sh1.82 million award to about Sh251,000 has renewed public interest in the in duplum rule, a little-known legal protection that stops interest on unpaid loans from growing without limit.

Justice Linus Kassan of the Civil Appeals Division at Milimani, Nairobi, partly allowed an appeal by a borrower who had been ordered by a magistrate's court to pay the full amount claimed by a woman who lent him money in 2019.

How the debt ballooned

According to the court record reported by Kenyans.co.ke and Kenya Today, the lender said she had advanced Sh700,000 at an agreed interest rate of 15 per cent a year. She went to court in July 2021 saying the borrower had not repaid and that the debt had grown to Sh1.82 million. The magistrate awarded the full sum with costs and further interest.

On appeal, the borrower argued that the lender had not proved her claim. The High Court agreed in part. It upheld a written loan agreement for Sh400,000 and held that his signature bound him because she had accepted the terms by releasing the money.

However, an additional Sh300,000 she said had been paid by cheque through a separate company was not proven, because bank deposit records did not show that the borrower received it. The court also deducted Sh220,000 that the borrower had already repaid from the principal instead of counting it all as interest.

Using simple interest at 15 per cent a year, the judge found Sh251,395 payable as at the date the suit was filed.

What the duplum rule says

The rule is set out in Section 44A of the Banking Act. It limits what a bank or financial institution can recover on a non-performing loan to the outstanding principal, interest equal to that principal, and reasonable recovery costs. In the court's words, arrears of interest "cease to accrue once they equal the principal then outstanding."

Applying the rule, the judge capped total interest at the outstanding principal of Sh204,227, putting the most the lender could ever recover at Sh408,454.

Grey area for informal lending

Justice Kassan noted that the protection clearly binds banks, but that High Court judges have reached different conclusions on whether it applies to private, non-bank lenders. Whether it applies "by its own force to a private, non-bank lender" remains unsettled, he observed.

That question matters to millions of Kenyans who borrow from friends, chamas, shylocks and digital lenders, where interest charges can quickly exceed the amount borrowed. Lawyers say the ruling is a reminder to borrowers to keep proof of every repayment, and to lenders to document every advance, because courts will only enforce what can be proved.

Photos: Kenyans.co.ke; Ahandrich/Wikimedia Commons (CC0). Thumbnail design: HAMASTA MEDIA.