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Banks Given Approval to List Guarantors of Bad Loans

Author 3 years ago

By Moses Adongo

The High Court has given Kenyan commercial banks and Saccos the go-ahead to blacklist guarantors with the credit reference bureaus (CRBs) in a situation where borrowers default on paying back loans.

This followed a case in which a guarantor had sued the Co-operative Bank for listing him with the credit bureau after a school he had guaranteed defaulted.

Obadhia Gitonga Micheu had sued the bank for blacklisting him without his knowledge and in the process denying him the opportunity to borrow from banks. He had asked the court to award him Sh215.8 million compensation for damages caused to his business.

While reading her judgment, Justice Grace Nzioka said that whereas she found the bank at fault for not informing the complainant about the outstanding loan, the defendant acted legally in blacklisting the guarantor.

“The referral of any information to the CRB is a requirement of the law, and the defendant as a financial institution is entitled to do the same, and as a result of their negligence in notifying the plaintiff of the outstanding balance, the court has held that the plaintiff will not pay any interest on the said sum,” she ruled.

Justice Nzioka noted that she didn’t find the defendant malicious in its actions thereby could not grant Mr. Obadhia his prayers.

She added that the law transferred the responsibility of paying a debt to the guarantor in case the borrower defaulted. According to the judge, the fact that the bank did not inform him about the outstanding loan could have not, in any way, released him from the contract.

At the heart of the dispute is a loan that Mr. Obadhia had guaranteed in favor of Chogoria Junior School, where he is a director. He had guaranteed the loan using two parcels of land which they owned with his father, Jediel Micheu.

The bank had, however, served him a notice in 2008 that the school had defaulted the loan serving a balance of Sh952,262. To help him service the balance, the Co-operative bank allowed Mr. Obadhia to dispose of the land.

Despite selling the land, it later emerged that some Sh133, 000 in a separate loan account was still not settled; this was in addition to the interest accrued during the process of selling the land.

The complainant, however, denied knowledge of the outstanding balance is saying that he only came to know about it in 2012 after a bank had refused to loan him citing his blacklisting at the CRB.

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