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In the Kenyan credit market, the phrase “In Duplum” is often the last line of defense for a borrower drowning in debt.
Derived from Latin, meaning “in double,” the rule is a consumer protection cornerstone designed to prevent interest from spiraling out of control.
According to the rule, only the principal owing at the time the loan becomes non-performing, contractual interest that does not exceed the principal owing at that time, and costs incurred in recovering any amounts owed by the debtor may be recovered with regard to non-performing loans.
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.
The goal of the rule is to make the credit market more equitable. It safeguards consumers, promotes early loan restructuring, stops the accumulation of exploitative interest, and strengthens the stability of the financial industry.
Key elements include:
- Interest stops accumulating once it reaches the principal.
- Fees on non-performing loans cannot exceed the principal plus accrued interest.
- Only licensed banks and financial institutions fall under section 44A.
The In Duplum Rule’s Applicability
Once a loan is non-performing, the rule comes into effect.
A loan is considered non-performing under CBK prudential guidelines if it has been past due for more than ninety days.
Once categorized as such:
• Interest might keep building up in the bank’s records.
• Interest that surpasses the principal, however, cannot be recovered by the bank.
• The statutory ceiling applies to recovery actions.
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When the In Duplum Rule Is Terminated
Once the loan is reclassified as performing, the rule is no longer applicable. If the borrower makes their account regular:
• From now on, the lender may impose contractual interest.
• Accrued interest is not cancelled by the cap.
• The loan contract’s regular treatment of the account is simply resumed.
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Central Bank of Kenya. PHOTO/CBK