The In Duplum Rule Beyond Banks

 

Introduction

In recent months, Kenyan courts have witnessed an upsurge in litigation involving banks seeking to realize securities, driven largely by a challenging economic environment. Prominent Kenyan figures and businesses have increasingly found themselves in financial distress, leading banks to aggressively pursue recovery of outstanding debts through enforcement of collateral. An article in The Sunday Nation of 4th May 2025 highlights several such high-profile cases, underscoring the relevance and urgency of revisiting protections available to borrowers under Kenyan law.

This has sparked renewed interest in the application and scope of the in duplum rule, a principle of consumer protection intended to shield borrowers from excessive interest accumulation. Building on an earlier discussion published on our website in 2023 by Adrian Nyiha, this article delves further into the historical evolution of Kenya’s statutory in duplum rule and critically analyzes contemporary judicial debates surrounding its applicability beyond traditional banking institutions.

Legislative Evolution: From the Donde Act to Section 44A

Kenya’s in duplum rule in its current form was born out of reforms in the banking sector. In the early 2000s, concern over exorbitant interest and fees charged by banks led to legislative intervention. Joe Donde, then Member of Parliament for Gem, sponsored the Central Bank of Kenya (Amendment) Act of 2000 (popularly known as the Donde Act), which sought to cap interest and charges on loans.

This included an in duplum provision to limit the total recoverable amount on a loan to no more than the principal plus accrued interest equal to that principal. The Donde Act’s proposals were highly controversial: local banks and international financial institutions (including the IMF and other donors) resisted, arguing that capping interest would stifle the financial sector. Key provisions were declared unconstitutional by the High Court in 2003, primarily due to retrospective implications on existing loan contracts (Kenya Bankers Association v Minister for Finance [2004] 1 KLR 61).

The public outcry over oppressive interest, however, did not fade. After further debate and a failed attempt in 2004 to re-introduce interest caps, Parliament eventually passed the Banking (Amendment) Act 2006, which incorporated Section 44A into the Banking Act (Cap. 488) to re-establish the in duplum rule effective 1st May 2007. Section 44A of the Banking Act provides that when a loan becomes non-performing (where the borrower does not service the loan for at least 90 days), the lender may not recover from the borrower more than the sum of:

1. The principal owing when the loan became non-performing;
2. Accrued interest on that principal, not exceeding the principal amount; and
3. Recovery expenses reasonably incurred in pursuing the debt.

In practical terms, interest ceases to accrue once the accumulated interest equals the principal outstanding at the time of default, (in duplum). Any further interest beyond that point is not recoverable from the borrower.

Importantly, Section 44A applies only to specified lenders. The Banking Act confines the rule to an “institution”, defined to mean a bank, financial institution, or mortgage finance company licensed under the Act. A “financial institution” in this context is essentially a non-bank company that takes deposits from the public for lending or investment (or one gazetted as such by the Minister). In other words, the law as written limits the in duplum rule to deposit-taking lenders (banks and similar institutions). It does not on its face apply to other entities that extend credit but do not take public deposits – such as unregulated moneylenders, hire-purchase vendors, digital lenders, microfinance institutions (MFIs) not licensed as banks, or government lending bodies like the Higher Education Loans Board (HELB). Notably, Section 44A itself contains an important exception: it “shall not apply to limit any interest under a court order accruing after the order is made.”

This statutory scope has given rise to debate and litigation: should the in duplum protection only benefit bank borrowers, or should it extend to all borrowers regardless of the lender’s nature? The historical intent of the legislature and the precise wording of Section 44A set the stage, but it has been left to the courts to grapple with how (and whether) to apply the rule “beyond banks.”

Application to Banks and Financial Institutions under Section 44A

The in duplum rule is not an equitable or general rule at large, but one tied to the regulatory framework for banks. As seen above, Section 44A itself contains an important exception to the effect that it “shall not apply to limit any interest under a court order accruing after the order is made”. This means that once a lender has obtained a judgment on a debt, any interest accruing on that judgment (typically at court-prescribed rates) is not subject to the in duplum cap.

The rationale is that post-judgment interest is sanctioned by the court process and no longer part of the contractual accrual of interest on a non-performing loan. The Court of Appeal in the Lee G. Muthoga v Habib Zurich Finance (K) Limited & another^[1]  underscored this point, holding that Section 44A does not constrain interest accruing after a court decree – in other words, in duplum stops operating at the moment of judgment. As a result, even a bank loan which had its interest capped at double upon default could, after judgment, begin to accrue additional interest on the judgment debt without the statutory limit. This has practical significance: lenders have an incentive to promptly seek court judgment on a defaulted loan, since delaying too long means interest cannot grow beyond the cap, whereas after judgment, interest can run freely (albeit at the usually lower court rates). Borrowers, conversely, gain protection only up to the point of litigation – a deliberate balance to encourage resolution of debts but still compensate a lender for the time-value of money during litigation.

The Uncertain Reach Beyond Banks: Private Lenders and Unregulated Loans

A harder question – and one that has seen divergent judicial opinions – is whether the in duplum rule (or its underlying principle) extends to lending arrangements outside the Banking Act. These include loans between private individuals or companies, moneylenders not licensed as banks, microfinance institutions, hire-purchase arrangements, and other forms of credit that fall outside the definition of “institution” in Section 44A. By its text, Section 44A binds only banks, deposit-taking institutions, and gazetted financial institutions. Thus, on a strict reading, a loan from any entity that is not a bank or similarly licensed institution is not subject to the statutory in duplum cap. Does that mean a private lender or a microfinance company can charge unlimited interest on a defaulting borrower? Kenyan courts have grappled with this issue, and the jurisprudence has evolved unevenly.

Early indications were that the rule would not apply beyond banks. In Desires Derive Ltd v. Britam Life Assurance Co. Ltd (High Court, 2016)^[2], a dispute involving an insurance company’s loan, the court flatly stated that in duplum “is only applicable to banks” as provided in Section 44A. This echoed the prevailing view that the rule’s reach was confined to the Banking Act’s domain. Likewise, the Court of Appeal in Lee Muthoga v. Habib Zurich Finance Ltd (2016) observed that the in duplum rule was not a general principle for all loans. We shall see more on the Lee Muthoga case below.

Borrowers outside the banking sector have had to resort to arguments of unconscionability or other general doctrines if interest charges became extortionate. And indeed, Kenyan courts have provided relief in egregious cases. In Margaret Njeri Muiruri v Bank of Baroda (Kenya) Limited^[3] a case dealing with events that predated the enactment of Section 44A of the Banking Act, the court focused on the unconscionability of the exorbitant interest charged by the bank and the bank’s failure to act in good faith when varying the interest rate without notice to the borrower.

Recently, Kenya’s High Court delivered conflicting decisions on whether to directly extend the in duplum rule beyond banks. The first shot was fired by Justice Alfred Mabeya in August 2022 (in the HELB case, discussed below), where he stated as follows: “in this regard, I hold that being of public interest, the in duplum rule will be applicable for those lending monies as it does to banks” effectively applying the rule to all who lend money.  Two months later, in October 2022, Justice David Majanja took a different stance in Momentum Credit Ltd v. Kabuiya (High Court, 2022)^[4]. Momentum Credit is a microfinance lender (non-deposit taking) which had given a loan that accumulated large interest and penalties. When sued, the borrower invoked Section 44A to claim the interest was over the duplum limit. The High Court unequivocally held that Section 44A did not apply, because Momentum Credit was not a bank or deposit-taking institution within the meaning of the Act.

Justice Majanja emphasized that to be a “financial institution” under the Banking Act, an entity must accept deposits from the public and be gazetted or licensed accordingly. Momentum did not take any public deposits (it was lending out of its own funds), so it fell completely outside the ambit of Section 44A. The judge rejected an argument that being licensed under the Microfinance Act or regulated by the Central Bank in some fashion would bring the lender under Section 44A. In Justice Majanja’s view, the wording of the statute was clear: if the lender is not a bank or deposit-taking institution, the statutory in duplum rule simply does not apply. Consequently, the borrower’s only hope in Momentum Credit v. Kabuiya was to prove the interest was unconscionable or the contract otherwise illegal. But since the borrower’s case had been argued squarely on Section 44A (which was inapplicable), the judge declined to interfere with the contract.

Justice Majanja’s decision thus reaffirmed the strict contractual approach for non-bank lending: if you borrow from a private lender or non-deposit taking microfinance, you are bound by your contract terms unless they are so outrageous as to be void for unfairness. Justice Majanja observed that  “a court of law could not rewrite a contract with regard to interest as the parties were bound by the terms of their contract”.

The HELB Case: Extending In Duplum via the Constitution

In contrast to the conservative approach of Momentum Credit, Justice Alfred Mabeya in Anne J. Mugure & 2 others v. Higher Education Loans Board (High Court, 2022) signalled a willingness to extend the in duplum rule beyond banks – at least in the context of a public student loan scheme. The case involved three university students who had received loans from the Higher Education Loans Board (HELB), a statutory body that funds student tuition and charges below-market interest but hefty penalties for default. The students defaulted for several years, and their loans accrued massive penalties and interest – in one instance, a loan of KShs 82,000 had grown to over KShs 540,000. They petitioned the High Court, arguing that Section 15(2) of the HELB Act (which imposes fines of at least KShs 5,000 per month of default) violated the in duplum rule and amounted to an infringement of their constitutional rights. Essentially, they asked the court to read the in duplum principle into the HELB Act or declare HELB’s charging of unlimited penalties unconstitutional.

Justice Mabeya agreed with the petitioners in substance. He stopped short of declaring section 15 (2) of the HELB Act unconstitutional, but he read into it the in duplum limitation. The court issued declarations that imposing interest and fines beyond the principal amount violated the borrowers’ rights – specifically the right to consumer protection and to economic and social rights under Articles 46 46(1)(c) (protection from unfair practices) and 43(1)(e) (social security) and (f) (education) of the Constitution. The judge declared that HELB is “not entitled to recover… an amount exceeding double the amount advanced”, effectively writing the in duplum rule into HELB’s operating framework.

Justice Mabeya’s reasoning in Mugure v HELB broke new ground: he framed the in duplum rule as a public interest shield, not just a banking technicality. He declared that the rule “will be applicable for those lending monies as it does to banks,” signaling its reach beyond financial institutions to entities like HELB. This wasn’t a narrow ruling confined to student loans—it hinted at a broader principle that any lender, institutional or otherwise, should face the same interest cap when public policy demands fairness. Mabeya’s logic leaned heavily on protecting borrowers from crushing debt, planting a seed for the rule’s wider embrace

He found an element of unconstitutional discrimination in limiting in duplum protection only to bank borrowers. Borrowers from HELB (often needy students) were left at the mercy of compounding fines, whereas borrowers from commercial banks enjoyed statutory protection under Section 44A. This, the court held, was a form of unequal treatment. Justice Mabeya noted it was unfair and discriminatory to treat one set of borrowers differently when the harm of excessive interest (crushing debt burdens) was the same. In effect, he found that if banks cannot pile on usurious interest, neither should HELB, nor, by extension, any lender exploiting vulnerable borrowersThe upshot of the HELB decision was a clear message: the in duplum rule is not just a technical banking regulation but a broader principle of equity and consumer protection in Kenya’s constitutional era.

The HELB decision is persuasive but not binding on other High Court judges and as at the date of this article, it has not been tested in the Court of Appeal. If it remains good law, it potentially opens the door for any borrower facing a loan from a non-bank to argue that in duplum should apply by analogy or by constitutional extension.

Post-Judgment Interest: No In Duplum Protection

One of the statutory remedies available to a chargee under Section 90(3)(e) of the Land Act, 2012 is the right to sue the chargor personally to recover any outstanding monies secured by the charge. It is precisely in such instances, where a chargee obtains a court judgment against the borrower, that the question of accruing further interest beyond the protective ambit of the in duplum rule arises. Section 44A excludes its application to post judgement interest.

The practical effect of this is seen in cases like Lee Muthoga v. Habib Zurich Finance (2016): there, a protracted litigation led to a judgment sum that almost doubled due to 15 years of delay at court rates. The debtor (Lee Muthoga) argued that allowing interest to double the debt was against the in duplum rule. The Court of Appeal acknowledged the attractiveness of that argument but pointed to Section 44A(4) – the statute does not limit interest accruing after a court order. In the appellate judges’ view, the legislature intentionally excluded judgment interest from the cap, thereby limiting in duplum to the pre-judgment phase of a loan.

Instead, the Court of Appeal resorted to equitable principles to mitigate the harsh effect of the delayed interest. The judges noted that neither party was to blame for the judicial delays, and it would be unjust for the debtor alone to shoulder the massive interest accrued simply because the “wheel of justice” turned slowly. Invoking the maxim actus curiae neminem gravabit (an act of the court shall prejudice no one), the court crafted a Solomon-like solution: it disallowed half of the interest that had accumulated during the extraordinary delay, requiring the debtor to pay interest for only six of the 12 years of delay. This discretionary reduction was not an application of in duplum per se, but it shows that even where in duplum does not apply, courts may still seek a fair outcome when interest becomes excessively burdensome due to factors beyond the parties’ control.

The key lesson here is that once a lender converts a defaulted loan—previously regulated by Section 44A—into a court judgment by exercising its statutory right under the Land Act to sue the borrower personally rather than realizing its security, the amount claimed in the suit must comply with the statutory in duplum rule. In other words, at the point of filing the suit, the lender’s claim for interest cannot exceed the principal outstanding. However, once judgment is entered, the statutory cap ceases to apply, allowing the lender (whether a bank or otherwise) to accrue further interest on the decretal sum at the rate determined by the court (typically 12% per annum in Kenya for civil judgments), without being restricted by the original double-limit provision.

Implications for Lenders, Borrowers, and the Financial System

The evolving jurisprudence on in duplum carries significant implications for all stakeholders in Kenya’s credit market:

For bank customers, the in duplum rule has been a boon – it protects them from endless debt traps on non-performing loans and gives a measure of certainty about the worst-case scenario (debt doubling). For borrowers from other lenders, the situation is still precarious. If the rule is not applied, a borrower from, say, a non-deposit taking microfinance or a shylock could see their debt snowball far beyond double, unless they convince a court that the rates are unconscionable.

The HELB judgment, if followed more broadly, offers hope of in duplum protection to all borrowers, meaning equal relief from oppressive interest regardless of the lender’s identity. This would enhance consumer protection across the board and potentially encourage more borrowing from informal sources with less fear of ruinous consequences.

Conclusion and Future Outlook

The journey of Kenya’s in duplum rule—from its historical inception through the spirited legislative debates around the Donde Bill, to its eventual enactment under Section 44A of the Banking Act—reflects an enduring commitment to balancing contractual freedom against the necessity of consumer protection. Initially conceived as a targeted measure to regulate banks, its evolving interpretation by Kenyan courts, notably in the contrasting judgments of Justices Mabeya and Majanja, underscores an ongoing tension between strict statutory interpretation and broader constitutional principles of equity and fairness.

The uncertainty concerning the rule’s application beyond banks, highlighted in the HELB and Momentum decisions, demonstrates a clear need for legislative or appellate clarification.

If the expansive approach of Justice Mabeya in the HELB case gains broader judicial endorsement, it could significantly reshape Kenya’s lending landscape by extending in duplum protection universally, thereby promoting greater consumer welfare and fairness.

Conversely, adherence to the restrictive interpretation articulated by Justice Majanja will maintain the status quo, reinforcing a dual-tiered lending environment in which only certain borrowers enjoy statutory protections, leaving others reliant on less predictable doctrines such as unconscionability.

The responsibility now rests squarely on legislators and appellate courts to provide decisive clarity. Legislative action could explicitly extend in duplum protections beyond banks, creating uniformity and certainty. Alternatively, appellate judicial pronouncements may solidify the current position or decisively embrace a broader application, using constitutional rights and principles as foundational anchors.

Ultimately, the evolution of Kenya’s in duplum jurisprudence is not merely a technical financial debate but a critical examination of justice, equity, and economic stability in a rapidly evolving credit market. The decisions made today will profoundly shape financial inclusivity, consumer protection, and the sustainability of lending practices in Kenya’s financial ecosystem for years to come.

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