Borrowers can rest easy after Uhuru rejects Bill shielding loan guarantors auction

February 13, 2020 (2 weeks ago)
The President notes that amending the law in the manner proposed in the Bill will negate a long-standing principle of contract law, prejudice the financial sector, and adversely affect credit advanced to micro, small and medium enterprises/FILE

, NAIROBI, Kenya Feb 13 – President Uhuru Kenyatta rejected to assent to a Bill that would have compelled financial creditors to seize assets of defaulting borrowers before touching a guarantor’s property.

The Law of Contract (Amendment) Bill, 2019, which is sponsored by Juja MP Francis Waititu seeks to amend Section 3 of the Law of Contract Act that lays rules for signing of such agreements.

In his Memorandum to Parliament, the President notes that amending the law in the manner proposed in the Bill will negate a long-standing principle of contract law, prejudice the financial sector, and adversely affect credit advanced to micro, small and medium enterprises.

The President also objects to the proposal on grounds that it will interfere with the operations of capital markets.

Speaker of the National Assembly Justin Muturi informed the House that the President has consequently recommended deletion of the said Clause of the Bill, which as a matter of fact, is the primary content of the Bill.

“Honourable Members, on the onset may inform the House and the relevant Committee that the Bill has only two Clauses, 1 and 2. The President has recommended deletion of Clause 2, and if the House agrees with the President fully, there will be Clause 1 which cites the title of the Bill,” he said in his Communication from the Chair.

Parliament could still veto the President’s move by casting two-thirds of its total votes to push the bill.

“Honourable Members, Standing Order 154(2) requires the House to consider the President’s Reservations within twenty one (21) days upon receipt of the Memorandum. In this regard, the Reservations of the President, as contained in his Memorandum, now stand committed to the Departmental Committee on Justice and Legal Affairs for consideration. The Committee should table its report soonest to allow the House to consider the President’s Reservations within the said timelines,” Muturi stated in his direction to the House.

During debate on the last year, Waititu said he was motivated to sponsor in response to increased cases of lenders such as Saccos taking over guarantors’ property when borrowers default on repayment.

MPs backed the proposal saying it will end the current case where creditors target innocent guarantors as low hanging fruits in their bid to collect bad loans, instead of pursuing the principal borrower to clear his/her debt.

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