This is a substantially updated version of a paper Allen Waiyaki Gichuchi EBS presented in 2006 titled “The Great Interest Rates Debate- An Examination of The Evolution of The Interest Rates Regime in Kenya Over the Last 15 Years”.

Of all the battles fought in court over injunctions, the common weapon in the arsenal of the legal protagonists has been an attack on the applicable interest rate governing a contractual document. It is for this reason the Court of Appeal captured the essence of disputes over interest application in the case of Pius Kimaiyo Langat v Co-operative Bank of Kenya Limited in the following words:

“There is a perennial vexing nightmare for borrowers who take a relatively small loan from a lending institution, but a few years down the line, the institution drops a bombshell of a demand for the immediate payment of a colossal sum, literally bankrupting the borrower, if not confining him/her to a hospital bed due to depression. The main bones of contention are invariably: uncertainty of lending terms and documentation, fluctuating rates of interest, penalty interest, default charges, interest on arrears, additional interest, commissions, bank charges, bank statements or lack of them, among others which may or may not have been part of the written contract.”

The following exposition into the interest rates debate will attempt to illuminate the conundrum surrounding the interest rates debate and also address some legal minefields that an advocate must appreciate when it comes to the recovery process. The most prevalent litigation that the courts are constantly assailed with is injunctions filed by aggrieved bank customers who rush to court to prevent the banks from realizing their securities. The common theme in most of the cases revolves around a dispute on the amount of loan outstanding. In most instances the complaint has been that the rate of interest was:

• Illegal as the approval to vary the rate of interest had not been sought from the Minister; or
• Unconscionable and unreasonable; or
• Not contractually agreed and was varied without the consent of the customer.

This paper will discuss the evolution of the interest rates regime through statutory interventions and judicial interpretation.

You can find the complete document in the link below:

Originally published on January 2020 by Allen Waiyaki Gichuhi EBS of Wamae & Allen Advocates