Guarantors Cushioned From Aggressive Lenders In Approved Bill

Law of Contract (Amendment) Bill, 2019

A guarantor comes on board to co-sign a loan agreement before it goes through just in case the borrower happens to default. The lenders will sometimes do a phone call with both parties to go over the terms and conditions of the agreement.

In the financial landscape in Kenya, the guarantors suffer a blow in the gut when the borrowers defaults a loan. The unamended law provided that if the customer cannot repay at all or come to some kind of arrangement, the repayment due will automatically be collected from the guarantor’s debit account or his assets seized by the lender.

Good news. The National Assembly’s Justice and Legal Affairs committee has approved a bill that will compel creditors to seize assets of defaulting borrowers before laying their hands on a guarantor’s property. The parliamentary committee has also proposed a minor amendment to restrict the application of the law to contracts signed after the date the Bill becomes law.

The Bill comes amid increased cases of lenders taking over guarantors’ property when borrowers default on repayment seeking to put an end to the dominant cases where creditors are quick to pounce on guarantors to make up for their bad debts. The committee cleared the Bill sponsored by Juja MP Francis Waititu seeking to amend Section 3 of the Law of Contract Act that lays rules for the signing of such agreements.

“Upon hearing from the legislative proposal’s sponsor (Mr. Waititu), the committee was persuaded by the proposed amendment and recommends for the passage of the Bill subject to one minor amendment,” said Mr. William Cheptumo, Baringo North Member of Parliament.

Law of Contract (Amendment) Bill, 2019, proposes that in case of a default by the principal borrower, the creditor should first auction the assets of the former before those of guarantors. The Bill was approved on account of submissions by the Attorney General, Kenya Bankers Association (KBA) and the Law Society of Kenya (LSK).

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