A shylocking firm engaged in the highly profitable but unregulated money lending business in Kenya has been sued by a frustrated client who was unable to service their demands for high and unrealistic interest rates.
According to papers filed in court, the notorious Izwe Loans Kenya Limited was sued by the frustrated Kenyan due to unconscionable, immoral, iniquitous, unreasonable interest rate of 62.04 per annum. He argues that the rate is against common law and public policy of money lending in Kenya as derived from existing legislation. The case was filed after the firm disbursed Kes 1,314,000 to the Plaintiff and thereafter auctioned the Plaintiff’s executive Mercedes Benz car valued at approximately Ksh. 4 million to recover an outstanding loan of approximately Ksh 1.8million, following only two months of default in repayment.
Financial and legal experts opine that the suit could likely transform itself into a public interest litigation against the shylocking mafia who are known to levy unreasonable interests and redemption charges imposed on vulnerable Kenyans in view of the now capped interest rates at 14% per annum. The suit could also expose the underworld of extortion, blackmail, loan sharking, debt collection and auctioneer racketeering that has lately victimised millions of Kenyans.
In court, the plaintiff argues that whereas freedom of contract is sacrosanct and that the courts shouldn’t re-write commercial agreements, the courts of law have a discretion and indeed an obligation to set aside contracts which unfairly take advantage of desperate circumstances of borrowers who, faced with emergency situations end up accepting unfair loan facility terms. Indeed, it’s interesting to note that courts in other jurisdictions have held that such contracts are unenforceable, and proceeded to remedy such situations by finding that the contract has to be read in terms that are fair, and in line with public policy as read from existing legislations, even if such legislations does not directly relate to unregulated shylocks.
In other countries, courts have held that while parties to a loan agreement have wide latitude to stipulate on any applicable interest rate, interest rates whenever unconscionable may still be declared illegal; there is certainly nothing in a circular which grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets.
It is argued that stipulations authorizing iniquitous or unconscionable interests are contrary to morals, if not against the law. In Medel v. Court of Appeals, the court annulled a stipulated 5.5% per month or 66% per annum interest on a P500,000.00 loan and a 6% per month or 72% per annum interest on a P60,000.00 loan, respectively, for being excessive, iniquitous, unconscionable and exorbitant. In Ruiz v. Court of Appeals, the court declared a 3% monthly interest imposed on four separate loans to be excessive. In both cases, the interest rates were reduced to 12% per annum.
Experts point to the case in Lesotho; BOLIBA-MULTI PURPOSE COOPERATIVE SOCIETY versus RAMATHIBELI JOSEPH MPOKO, CCT 37 of 2007, IN THE HIGH COURT OF LESOTHO, (Commercial Division) where the court held that: “Whilst the Money Lending Order does not apply to a Co-operative Society the clear intent of the Parliament is to establish a ceiling on the rate of interest that lending institutions in Lesotho can charge. This amount is 25% per annum. In the view of the Parliament anything above that is harsh and unconscionable.”
Auctioneers in Kenya and available media reports will attest as to the several foreclosures taking place against individuals and small businesses due to expensive and unsustainable loan term from unregulated money lenders.
Indeed, depending on how this case is determined, regulated commercial banks, who have often complained of how unregulated lenders have unfairly eaten away into their market, will be watching keenly.