A new law has been proposed seeking to force lenders to go after borrowers before seeking guarantors.
Currently, lenders have the option to decide who to target first when seeking to recover loans for defaulters, and some including top banks auction guarantors' property immediately.
Juja MP Francis Waititu outlined the proposal in an amendment sent to the Speaker of the National Assembly Justin Muturi.
He stated that the law's purpose was to “provide a hierarchy that shall be followed by creditors when recovering debt”.
The Court of Appeal, in recent rulings, has stated explicitly that the Constitution was not specific on the issue, allowing some borrowers to walk free at the expense of guarantors who secured their loans.
[caption caption="Juja MP Francis Waititu"]
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Waititu demanded that financial institutions be compelled to exhaust all securities provided by the debtor before following up on those provided by the guarantor.
He wants Section 3 of the Law of Contract amended to read that “the plaintiff shall first realise the security of the principal.”[caption caption="Juja MP Francis Waititu"][/caption]
In his letter to Muturi, Mr Waititu further stated that the bill aims to “to protect the guarantor from exploitation by creditors.”
In 2017, then Gatanga MP Humphrey Kimani had presented a public petition to parliament over a case where one Ngengi Muigai’s property was sold after his brother’s firm, Benjoh Amalgamated Limited, defaulted on a loan.
A protracted court battle as Muigai sought to overturn the auction of a 400-acre farm in Thika had ended with the Court of Appeal ruling that “it was within KCB’s right to choose upon which property to exercise its rights over.”
[caption caption="Inside the National Assembly"]
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