Barring any last minutes changes, loan guarantors in Kenya may soon be hard to be dragged to court. This is because Kenyan National Assembly’s Committee on Justice and Legal Affairs has approved, for passage into law, the Kenyan Law of Contract (Amendment) Bill, 2019. The Bill proposes that in case of a default to repay loan by the principal borrower, the creditor should first auction the assets of the principal borrower before making for the property of guarantors.
A Breakdown of The Bill:
The law will only apply to cases that take place after the Bill becomes law, while the status quo shall remain for current cases.
The Bill seeks to amend Law of Contract Act, Cap 23 of Kenya.
The new position also provides that no suit shall be brought against a guarantor of any debt or promise unless the agreement is in writing and signed by the guarantor.
The move may not be unconnected with the decision of the Kenyan high court last year which allowed banks and other financial service providers to blacklist guarantors with Credit Reference Bureaus (CRB) in case of bad loans.
The ruling was made in a case where one Obadiah Gitonga had sued Cooperative Bank for blacklisting him over a defaulted loan where he was the guarantor. Mr Gitonga demanded to be delisted from CRB, a request the court denied saying that the bank acted within the precincts of the law.
Charles Rapulu Udoh
Charles Rapulu Udoh a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organisations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution and data analytics both in Nigeria and across the world.
For building developers, housing investors, and homeless Kenyans, this may be some good news. The World Bank has approved a loan of Sh25 Billion ($250 Million) for Kenya’s Affordable Housing Project. The loan appears to be a silver lining on the horizon at last, since Kenyan investors have refused to subscribe to the idea of government’s affordable housing demand.
Key Highlights of the Loan and Its Final Destination
The whole loan funds would be deposited in the Kenyan Mortgage Refinance Corporation (KMRC), the National Treasury and the Lands ministry, which would then see that the Affordable Housing Project is implemented.
KMRC hopes to drive the funds further down the drain by extending affordable long-term funding to financial institutions, who would then lend the money to home-buyers on a long tenure basis.
In all, the project will be jointly implemented through KMRC, the National Treasury and the Lands ministry.
80 per cent ownership stakes in the KMRC goes to the private sector while the remaining 20 per cent is for Kenya’s National Treasury.
“The project will also assist the Ministry of Lands and Physical Planning to improve property registration and address structural constraints in the land management system in Kenya,” the World Bank said in a statement.
The World Bank further hinted that the Kenyan Affordable Housing Finance Project (KAHFP) will support the operation of the Kenyan Mortgage Refinance Corporation (KMRC), a largely private-sector-owned and non-deposit taking financial institution supervised by the Central Bank of Kenya (CBK).
Mr. Felipe Jaramillo, Country Director, World Bank, further said:
“We believe Kenya’s vibrant private sector offers an excellent opportunity to crowd in privately-held skills and resources towards achieving the country’s Big Four affordable housing goals and in alignment with the World Bank Group’s Maximizing Finance for Development agenda.”
The Problem of Finding An Apartment To Let In Kenya
Kenyans largely access loans from saccos (cooperative societies) which provide estimated 90 per cent of Kenya’s total housing finance.
“Urban housing currently remains unaffordable for most Kenyans due to cost of financing, the short loan tenures and the high cost of properties,” Mr. Jaramillo said.
According to the World Bank, the 2016 interest rate cap in Kenya, joined with an overall Non-Performing Loan (NPL) ratio of 12 per cent, meant banks locked up their grant of credit to potential home-owners, meaning that middle to low income earners bore the most brunt.
Aside from the World Bank’s intervention, about 20 banks, savings and credit cooperative societies (saccos) have contributed towards the affordable housing project so far.
However, World Bank sees these efforts as simply not enough. According to the bank:
“While saccos’ interest rates remain low at 12 per cent, they remain highly constrained by the short-term nature of their deposit liabilities and short loan tenures of not more than five years.”
Kenya’s Affordable Housing Finance Project In A Nutshell
The KAHFP targets households classified by the government as falling within the mortgage gap and low-cost categories representing 95 per cent of the formally employed population.
KAHFP expects to do this by increasing access to finance by tripling the proportion of urban households with access
to a mortgage.
The project will promote inclusive finance by way of the KMRC serving saccos and microfinance banks which target borrowers on low and irregular incomes.
Investment in affordable housing will have a strong economic multiplier effect, given the number of linked sectors, and could support 132,000 new jobs.
“The World Bank has supported many mortgage refinance companies in emerging markets, and Kenya has the right pre-conditions for KMRC to be successful, such as supportive macroeconomic conditions, well-developed capital markets and financial institutions active in housing finance,” said Caroline Cerruti, World Bank’s Senior Finance Specialist and Task Team Leader for the Project
“Better housing conditions are also linked to improved health and education outcomes,” the World Bank statement noted.
Charles Rapulu Udoh
Charles Rapulu Udoh a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organisations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution and data analytics both in Nigeria and across the world.
