LENDING MONEY TO FRIENDS AND FAMILY

LEGAL ALERT: Digital lenders on the cusp of coming under CBK’s radar with the proposed amendments to the CBK Act.

LEGAL ALERT: Digital lenders on the cusp of coming under CBK’s radar with the proposed amendments to the CBK Act. 150 150 Admin_salclaw

The Central Bank of Kenya (Amendment) Bill 2020 is currently before the National Assembly’s finance committee, with the public participation stage having ended on 11th August 2020. After that, the finance committee will report to the house sitting in plenary on their consideration of the Bill before members of Parliament brace themselves for debating and voting on the same. The Bill aims to arrest the excessive digital lending rates that have entrapped many borrowers and to tame predatory lending. Further, the Bill aims to bring some sanity to the digital lending marketplace as there have been several complaints by members of the public over the unorthodox and humiliating tactics lenders use to pursue debt payment. For example, some lenders contact close family members of the debtors incessantly for them to appeal to the debtors to settle their debt.

A survey conducted by the Star newspaper in 2019 regarding interests charged by some digital lenders in Kenya revealed that a majority of them were charging interest rates as high as 15 percent per month, which translates to an Annual Pricing Rate of 180 percent. This figure is 15 times more than what commercial Banks charge for unsecured loans, with the present average rate being 11.95 percent, according to CBK.

If the Bill is passed, digital lenders will require CBK’s approval to vary their interest rates and to introduce new loan products. While digital lenders do not oppose the idea of regulation, some of them are however, against strict supervision by the CBK as they are not deposit-taking institutions like banks.  Instead, digital lenders consider regulation under the Microfinance Act as a more rational and suitable approach as this law caters for non-deposit taking microfinance institutions.  They also hold that regulation under the Microfinance Act will ensure that digital lenders maintain flexibility in the innovation of loan products as CBK approval will not be required.

 

Written by Edward O. Sudi

edwardsudi@salclaw.co.ke

Lending Out Money Safely

Lending Out Money Safely 150 150 Admin_salclaw

lend money
We have time and again encountered clients who lend money to colleagues, friends, family and other acquaintances on the basis of a trust relationship and in most cases by a way of an oral gentleman’s agreement. It has however become evident that many of this debts are never paid the end result of such informal transactions being broken relationships, broken trust and losses made.
If you want to safely lend money to somebody who is personally known to you it is always advisable get a qualified advocate to prepare a legally binding loan agreement between you and the borrower. Where such an agreement specifically provides for the provision of security for the loan advanced.
It is always important therefore to demand for security where you are lending someone a huge amount of money that you cannot afford to write off. A security can be in the form of the following:
Chattels mortgage- this is a term used to describe a loan arrangement in which an item of movable personal property is used as security for the loan. A chattel mortgage is a loan that is secured by chattel rather than by real property. Where movable property will include cars, household items, form produce e.t.c. With a chattel mortgage, the lender holds a lien against the movable property (chattel) until the loan has been satisfied, at which point the borrower resumes full control of the chattel. In case of default the lender can exercise their right of repossession in respect to the chattel.
Another way in which a lender can secure a debt is by way of transfers, in this regard a loan agreement provides for the depositing of ownership documents of the security e.g. a log book, the loan agreement thereafter specifically provides for the execution of post dated transfer documents between the parties and where the borrower defaults then the lender through his lawyers will be at liberty to lodge the said transfer for registration and thereafter repossess the security.
A loan agreement can provide for the borrower to do a power of attorney in respect of the security in favor of the lender, and thus where the borrower defaults  the executed power of attorney is registered in favor of the lender and the lender gets the power to deal with the security as they please.
A loan agreement can also have guarantors who pledge to fulfil the borrower’s obligation should the borrower default.
In conclusion it is always important to visit an advocate for proper guidance on how to safely lend money.
Written by
Mweresa Eugene Sudi
SUDI & ASSOCIATES