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Relief for Guarantors in Loan Default Cases

Ruiru MP Simon King’ara on Wednesday, April 26, tabled a bill before the National Assembly’s Justice and Legal Affairs Committee seeking to protect guarantors from loan defaults.

In the petition, King’ara sought to amend Section 3 of the Principal Act to prevent lending institutions from seizing the assets of guarantors in case the borrowers defaulted on their loans.

If passed into law, lending institutions will be forced to auction all assets belonging to the principal borrowers before sending notifications to the guarantors.

Additionally, the financial institutions will be required to attach the assets of the borrowers in case any claims arise of defaults or any financial obligations are required to be met.

“The objective of this Bill is to amend the law to provide that in case of a default, the creditor or the lending institution should first realise the assets of the defaulter before pursuing the guarantor

“This should not be the case. The assets of the principal debtor should be sold first as he or she is the main or sole beneficiary of the borrowed funds,” King’ara stated.

According to a report by the Parliament communication team, the MP promised to further deliberate on the proposals with the committee chaired by Tharaka MP George Murugara.

“Murugara commended King’ara for the proposals noting that they will help cushion guarantors, and promised to further deliberate on them with the committee members,” stated the report.

The bill had earlier been proposed by the late Francis Waititu, the former Juja Member of Parliament and was passed in the 12th Parliament.

However, former President Uhuru Kenyatta did not sign it into law and instead sent it back to the National Assembly for reconsideration.

The borrower is required to provide a guarantor when applying for a financial institution in case the assets of the borrower are not enough to cover the total cost of the loan including interest.

When the person who borrows defaults, the financial institution issues notice to both the borrower and the guarantor and chooses which assets to sell.


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