Two teachers have won a major victory against Mwananchi Credit Limited after the High Court ruled that the lender unlawfully inflated their loan and attempted to auction their property over interest that the Court later described as excessive, oppressive and legally unenforceable.
The dispute began in November 2016 when George M. Khaniri, with the consent of his co-owner Eunice Jelangant, borrowed Ksh7 million from Mwananchi Credit, secured by their Nairobi property, Nairobi Block 82/7303.
The loan was meant to be repaid within two months—Ksh 700,000 in December 2016 and the balance of Kshh 7.7 million in January 2017. The teachers fell behind, triggering a default interest of 10% per month, the equivalent of 120% per year, along with additional penalty charges that the contract did not define.
Within weeks, the lender demanded more than Ksh 9.3 million and soon instructed auctioneers to sell the teachers’ home. Faced with the imminent loss of their property, the plaintiffs secured temporary court orders and paid back the entire Ksh 7 million principal. What remained in dispute was the ballooning interest, Mwananchi Credit claimed it was owed over Ksh 15 million as at June 2017 and insisted that interest would continue to accrue until judgment.
In a strongly worded decision delivered on July 10, 2023, Justice A. Mabeya rejected the lender’s claims and delivered a ruling that is expected to reshape how private lenders operate in Kenya.
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The Court held that the in duplum rule, which prevents interest from exceeding the principal amount, applies to all lenders—banks, microfinance institutions and private credit companies alike. The judge noted that restricting the protection to banks would be discriminatory and contrary to public interest, especially when some private lenders impose rates far more punitive than those charged by regulated financial institutions.
The court found that Mwananchi Credit’s demand for Ksh15 million from a Ksh 7 million loan within months was “staggering” and a clear example of usurious lending. Justice Mabeya referred to earlier cases, including John G. Kamunyu v Safari ‘M’ Park Motors, where courts had refused to enforce extremely high interest rates on grounds of unconscionability.
He reiterated that courts will not enforce contracts whose terms are so harsh that they result in unjust enrichment or strip borrowers of their equity of redemption.
Although the plaintiffs had knowingly agreed to a short two-month repayment period with a high rate, the court held that the interest became unconscionable once it exceeded the principal and when additional undefined default charges were introduced. Because the contract did not explain how penalty charges were to be computed, the judge ruled that such charges were unenforceable and only served to worsen the oppression of the borrowers.
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In the end, the court concluded that Mwananchi Credit was legally entitled to recover a maximum of sh7 million—and since the teachers had already repaid that amount, the lender could not demand a single shilling more.
The attempted auction of their property was declared unlawful, and the lender was barred from levying further interest. Each party was ordered to bear its own costs, with the judge noting that the plaintiffs had succeeded in challenging the oppressive elements of the contract.
The ruling is now being hailed as a landmark judgment that reins in predatory lending practices and extends critical consumer protection to thousands of Kenyans who borrow from non-bank lenders. For the two teachers, it marks the end of a long and stressful battle—and a major affirmation of their rights.
By Philip Koech
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