A New bill that seeks to protect an individual who guarantees a Bank or Sacco loan taken out by a defaulting borrower from the auctioneer’s hammer, is set to be presented for discussion in parliament.
The Law of Contract (Amendment) Bill 2023, sponsored by Hon Simon King’ara Member of Parliament for Ruiru, is expected to mostly benefit Sacco loan guarantors, who are usually targeted when those they have guaranteed fail to service their loan repayment obligations.
A guarantor can best be defined as an individual who promises to settle a borrower’s debt if the borrower defaults on their loan obligation. In the case of Saccos, guarantors usually place their shares and deposits as well as other personal assets as collateral against the loans.
Numerous cases and disputes have been filed at the Courts where auctioneers are accused of unfairly descending on the property of a guarantor even before fully recovering the Sacco loan from a member who has defaulted and disappeared into thin air.
This Bill intends to shield the assets of such guarantors, requiring that all lending institutions, including Banks and Saccos, first go for the defaulter’s properties-including shares or unpaid dividends/rebates, before targeting those held by a guarantor(s).
This Bill makes another attempt to protect loan guarantors after a similar one that was approved and passed by the 12th Parliament, failed to see the light of day. This is after former President Uhuru Kenyatta, sent the bill back to parliament with his attached recommendations and reservations.
At present, the Sacco Act requires that in case of a defaulter, a Sacco Society first goes after deposits or share capital as well as any payable dividend or interest payable to a guarantor or endorser of a loan or credit facility or for any other obligations.
According to the law, all Sacco loans must be secured by at least three guarantors who should also be members of the said society or lender. This guarantor(s) must also have a total deposit that is equal to or more than the amount the borrower is seeking. Apart from deposits held in a Sacco, a member may also secure a loan facility by giving out share certificates, title deeds or insurance policy documents upto their surrender value.
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