Ruiru Member of Parliament, Simon King’ara, recently presented a bill to the Justice and Legal Affairs Committee of the National Assembly, aiming to safeguard guarantors from the repercussions of loan defaults.
King’ara’s petition sought an amendment to Section 3 of the Principal Act, which would prohibit lending institutions from seizing guarantors’ assets if borrowers failed to repay their loans.
If this bill is enacted, lending institutions will be obligated to auction all assets owned by the primary borrowers before approaching the guarantors.
Moreover, financial institutions will be required to attach the borrowers’ assets in the event of defaults or any outstanding financial obligations.
“The main objective of this proposed legislation is to amend the existing law, ensuring that in the case of a default, the creditor or lending institution must first liquidate the assets of the defaulter before pursuing the guarantor,” King’ara explained.
A report released by the Parliamentary communication team stated that MP George Murugara, the chairperson of the committee, commended King’ara for his proposals, acknowledging their potential to safeguard guarantors. Murugara promised to further deliberate on these proposals with other committee members.
It is worth noting that the bill was initially introduced by the late Francis Waititu, the former Member of Parliament for Juja, and was passed during the 12th Parliament.
However, the bill did not receive the approval of former President Uhuru Kenyatta, who sent it back to the National Assembly for reconsideration.
In the current system, borrowers are required to provide a guarantor when applying for a loan from a financial institution, especially if their own assets are insufficient to cover the total loan amount, including interest.
When a borrower defaults, the financial institution notifies both the borrower and the guarantor and decides which assets to sell.