In Duplum Rule in Kenya: Complete Guide with Case Law and Compliance Requirements
- Muhoro & Gitonga Associates
- 3 days ago
- 5 min read
Table of Contents
1. Introduction
The in duplum rule is a major principle in Kenyan banking and credit regulation. It limits the amount of interest that a lender may recover once interest equals the outstanding principal.
The rule protects borrowers from unmanageable interest accumulation while promoting responsible lending practices. Kenyan courts and the Banking Act have consistently upheld the principle.
2. Legal Foundation of the In Duplum Rule in Kenya
The rule is codified under section 44A of the Banking Act. It provides that a bank or financial institution cannot recover interest exceeding the principal amount of a non-performing loan.
The statute applies to all regulated lenders under the Central Bank of Kenya.
Key elements include:
• Interest stops accumulating once it reaches the principal.
• Fees and charges on non-performing loans cannot exceed the principal plus accrued interest.
• Only licensed banks and financial institutions fall under section 44A.
3. Purpose and Policy Rationale
The rule seeks to promote fairness in the credit market. It prevents exploitative interest accumulation, protects consumers, encourages early loan restructuring, and improves the stability of the financial sector.
4. When the In Duplum Rule Applies
The rule applies once a loan becomes non-performing. Under CBK prudential guidelines, a loan becomes non-performing when it is in arrears for more than ninety days.
Once classified as such:
• Interest may continue to accrue in the bank’s books.
• However the bank cannot recover interest that exceeds the principal.
• Recovery actions are limited to the statutory ceiling.
5. When the In Duplum Rule Stops Running
The rule stops applying once the loan is reclassified as performing. If the borrower regularises their account:
• The lender may charge contractual interest going forward.
• The cap does not cancel accrued interest.
• The account simply resumes normal treatment under the loan contract.
6. Leading Kenyan Case Law
The High Court upheld the rule; bank demand over four times the principal was a clear breach; appeal dismissed and debt ruled cleared.
In Duplum Rule extended to statutory bodies like NHC; excessive interest capped to protect the borrower.
Rule extended to HELB student loans; total recoverable amount capped at double the principal.
Section 44A applied; interest capped at the reduced principal after part-payments.
Micro and Small Enterprises Tribunal applied common-law in duplum rule; recovery limited to double the KShs 16,500 principal.
Injunction granted; court upheld the rule to preserve equity of redemption where debt ballooned from KShs 3.7m to over KShs 100m.
Supreme Court refused to stay lower court orders that had applied and upheld the in duplum cap.
Court of Appeal upheld retrospective application of Section 44A; post-2007 interest capped at outstanding principal plus equal amount.
7. Interaction with Banking, Credit, and Regulatory Laws
Section 44A provides the statutory basis for the rule. Lenders must observe the cap when calculating recoverable interest on non-performing loans.
The definition of non-performing loans, loan classification rules, and provisioning requirements guide when the rule is triggered.
Lenders must ensure accurate and lawful processing of loan and credit data when applying the rule. This includes fairness in credit reporting and compliance with accuracy obligations.
Corporate borrowers must assess the rule’s impact on financial reporting, especially where loan impairment and interest liabilities affect solvency calculations.
Licensed capital markets intermediaries offering credit or securities-backed lending must consider the rule when structuring secured credit arrangements.
8. Compliance Requirements for Lenders in Kenya
To comply with the rule, lenders must:
• Track loan performance status and classify loans accurately.
• Cease interest recovery once recoverable interest equals the principal.
• Maintain transparent records of principal, interest, penalties, and charges.
• Update loan statements promptly to avoid overstated claims.
• Align loan contracts with statutory limits.
• Ensure board level oversight over credit risk and consumer protection.
• Apply consistent treatment across individuals, SMEs, and corporate borrowers.
9. Borrower Considerations
Borrowers should:
• Monitor their statements to ensure interest does not exceed the outstanding principal on non-performing loans.
• Request reclassification where payments have regularised the account.
• Maintain written communication with lenders during restructuring or settlement.
• Confirm that penalties and fees comply with section 44A requirements.
• Seek clarification on interest computation if the account is in dispute.
10. Frequently Asked Questions
1. What is the in duplum rule in Kenya?
It is a legal rule under section 44A of the Banking Act that limits recoverable interest on a non-performing loan to an amount not exceeding the principal.
2. Does the rule apply to digital lenders?
It applies to digital credit providers licensed and regulated by the Central Bank of Kenya.
3. Does the rule cancel interest?
No. It limits recovery of interest but does not erase accrued interest in the lender’s books.
4. Does the rule apply to penalties and charges?
Yes. Total interest, fees, and charges on a non-performing loan cannot exceed the principal.
5. When does a loan become non-performing?
A loan becomes non-performing when it is in arrears for more than ninety days in accordance with CBK prudential guidelines.
6. Can a lender charge interest again after the rule applies?
Yes, but only if the borrower regularises payments and the loan is reclassified as performing.
7. Does the rule apply to all lenders?
The rule applies to institutions regulated by the Central Bank of Kenya. Unregulated private lenders may be governed by common law principles of fairness and unconscionability.
8. Does the rule apply to mortgages?
Yes. Mortgages offered by regulated financial institutions fall within section 44A.
