In Duplum Rule Kenya; In Duplum Rule Example, Origin & Implications

In Duplum Rule Kenya; In Duplum Rule Example, Origin & Implications

In Duplum Rule Kenya

What Is The Meaning Of In Duplum Rule?

The In Duplum rule, literally meaning “double the amount,” is a legal principle that restricts the accumulation of interest on a debt. In Kenya, this rule is governed by Section 44 of the Banking Act.

 It stipulates that once the total amount of arrear interest on a loan reaches an amount equal to the outstanding principal debt, interest ceases to accrue.

This rule is designed to protect borrowers from excessive interest charges, ensuring that they do not end up repaying more interest than the principal amount of the loan.

However, it’s essential to note that the In Duplum rule in Kenya applies strictly to non-performing loans. This means that for loans that are performing, where repayments are made as agreed, the rule does not come into play.

The government introduced this rule in 2006, amending the Banking Act, and it became effective on May 1, 2007.

It primarily applies to financial institutions regulated by the Central Bank of Kenya (CBK) and serves to safeguard borrowers from exploitation by lenders who permit excessive interest charges.

About In Duplum Rule in Kenya

The In Duplum Rule is a significant legal provision in Kenya that aims to protect borrowers from excessive interest accumulation on loans.

 The rule, which has its roots in South African common law, limits the interest accrual on a loan to equal the principal amount outstanding when a loan becomes non-performing.

This rule was introduced into Kenyan legislation through Amendment No. 9 of 2006 of the Kenya Banking Act.

In Duplum Rule Example

The rule typically applies to unpaid interest, and it states that once the amount of interest on a debt reaches an amount equal to the outstanding principal debt, interest stops accruing.

 For example, if a debtor owes a principal debt of Kshs. 1 million, the lender is not allowed to charge more than Kshs. 1 million in interest. Once the interest reaches this amount, it ceases to accumulate, ensuring that the debtor is not burdened with endless interest charges.

Historical Context and Justification

The introduction of the In Duplum Rule in Kenya was driven by a need to control the worsening situation of borrowers being exploited by lenders who permitted interest to accumulate to astronomical figures.

 Prior to the rule becoming Kenyan law, the situation was so dire that one judge attempted to reduce a KES 21 million loan that had accrued to KES 103 million to KES 30 million.

 The rule was seen as a mechanism of equitable distribution of resources and a way to protect the freedom of contract.

Application and Interpretation

The In Duplum Rule was initially applied through Section 44A of the Banking Act, which protected borrowers from exorbitant interest accumulations on loan facilities

However, the application of the rule has been a subject of debate in Kenyan courts, particularly regarding its applicability to non-deposit taking microfinance institutions and other non-bank lenders

In a case involving the Higher Education Loans Board (HELB), the court held that the In Duplum Rule applied to all lenders as it did to banks, citing public interest policy in protecting borrowers from exorbitant interest accumulation on loans.

However, in another case involving a microfinance institution, the court held that the lender was not subject to the In Duplum Rule in the Banking Act.

This divergence in interpretation indicates that the courts are divided on who the In Duplum Rule applies to.

Implications and Future Directions

The In Duplum Rule has significant implications for both borrowers and lenders. For borrowers, it provides protection from predatory interest rates that could make debts unbearable.

 For lenders, it ensures that they can redeem from the securities they received. However, the rule’s application needs to be expanded to cover all borrowers, including those who borrow from non-bank lenders.

 This expansion is necessary to balance public interests with commercial interest equitably and ensure that the freedom to contract that underpins a capitalist society is respected, but not at the expense of the populace

FAQs About In Duplum Rule in Kenya

The in duplum rule is a legal principle in Kenya that limits the amount of interest that can accrue on a loan. Here is a overview FAQs of this rule:

What Is The In Duplum Rule And How Does It Work In Kenya

The in duplum rule states that interest on a loan ceases to accrue once unpaid interest equals the outstanding principal amount. In other words, the total amount recoverable cannot exceed double the amount of the original principal debt.

The term “in duplum” comes from the Latin phrase “in duplo”, meaning “double”. So the rule effectively caps interest charges at 100% of the original principal amount borrowed.

the In Duplum Rule in Kenya is a critical legal provision that seeks to protect borrowers from excessive interest accumulation on loans. However, its application and interpretation have been a subject of debate, and there is a need for clarity and expansion to cover all borrowers.

 As the digital lending landscape continues to evolve, the application of the In Duplum Rule will undoubtedly continue to be a significant area of focus in Kenyan law.

The in duplum rule has had a significant impact in regulating lending in Kenya. Its expansion to all lenders is likely to enhance protection of borrowers. However, there are still some limitations and grey areas in applying the rule.

Further legislative and judicial guidance will help entrench the rule and delineate its scope. But overall, it is a positive step towards ethical and equitable lending practices.

What is the Origin of the Rule

The in duplum rule has its origins in Roman-Dutch common law and was later adopted in South Africa. It was introduced in Kenya in 2007 through an amendment to the Banking Act via section 44A. The rationale was to protect borrowers from excessive interest charges by lenders.

Prior to the amendment, some lenders were allowing interest to accumulate to exorbitant amounts, making loans almost impossible to repay. The in duplum rule was meant to curb such predatory lending practices.

What are the Key Provisions of In Duplum Rule?

Section 44A of the Banking Act contains the key provisions of the in duplum rule in Kenya:

• It applies to non-performing loans – where a borrower has defaulted on repayment as per the loan agreement.
• Once a loan becomes non-performing, the lender can only recover:
  • The principal amount owing when the loan turned non-performing
  • Contractual interest not exceeding the principal amount
  • Reasonable expenses incurred in recovering the loan
• Interest ceases to accrue once unpaid interest equals the outstanding principal amount

Applicability of In Duplum Rule

Initially, the in duplum rule only applied to banks and financial institutions regulated under the Banking Act.However, recent case law has expanded the application of the rule. In the 2022 case Mugure v Higher Education Loans Board, the High Court held that the rule applies to all lenders, not just banks.The judge stated that the in duplum rule is founded on public policy interests and should protect all borrowers from excessive interest charges.

Exclusions of In Duplum Rule

The in duplum rule does not apply in the following situations:

• Judgements debts – Interest can exceed principal amount when collecting on a court judgement.
• Performing loans – The rule only kicks in once a loan becomes non-performing.
• Credit cards and overdrafts – These are revolving credit facilities without a fixed repayment period.

Effects

The key effects of the in duplum rule are:

• Curbing predatory lending by limiting interest accumulation.
• Encouraging lenders to recover debts promptly before interest balloons.
• Protecting borrowers from spiralling interest charges on defaulted loans.
• Promoting responsible lending and borrowing.