Guarantor laws in Kenya: Understanding your rights and responsibilities
In Kenya, guarantors play a critical role in the credit market, particularly in the operations of SACCOs, banks, microfinance institutions, and informal lending groups. Acting as a guarantor means accepting legal responsibility to repay a loan if the borrower defaults. As such, the law places significant obligations on guarantors, while also offering important protections. Understanding the legal framework surrounding guarantorship is essential for both borrowers and those who agree to guarantee loans. Here are guarantor laws in Kenya.
Legal Foundation of Guarantorship
The Kenyan legal system recognizes guarantorship under contract law. When a person agrees to guarantee a loan, they enter into a binding legal contract with the lender. This agreement is governed primarily by the Law of Contract Act (Cap 23) and the Movable Property Security Rights Act, alongside specific rules under the Cooperative Societies Act for SACCOs. These laws establish the rules for how guarantees are made, enforced, and discharged.
A guarantee must be in writing and signed by the guarantor to be enforceable. This requirement ensures that all parties are fully aware of their obligations and prevents disputes over verbal agreements.
Guarantor Responsibilities
Once a person signs as a guarantor, they take on joint or secondary liability for the loan. This means that if the borrower fails to repay, the guarantor becomes responsible for the outstanding amount. In SACCOs, it is common for members to guarantee each other’s loans using their own savings or shares as collateral.
Kenyan courts have repeatedly affirmed that guarantors are not mere witnesses but financially liable parties. Guarantors may be required to repay the loan in full, including interest and penalties, depending on the terms of the loan agreement.
Right to Information and Consent
Guarantors in Kenya are entitled to full disclosure of the loan terms before signing any agreement. Lenders must provide clear information on the loan amount, repayment schedule, interest rate, and potential consequences of default. Furthermore, any changes to the loan terms that could affect the guarantor—such as increases in the loan amount or repayment period—must be communicated and consented to by the guarantor.
This protects guarantors from unknowingly being exposed to greater risk than they originally agreed to shoulder.
Limitations and Conditions
A guarantor’s liability may be limited to a specific amount or period if this is clearly stated in the agreement. Kenyan courts respect such limitations, but if no limit is defined, the guarantor may be held liable for the full outstanding loan balance.
Additionally, a guarantor may request to be released from their obligation under certain conditions, such as if the borrower repays the loan early, or if a replacement guarantor is approved. However, until the lender formally discharges the guarantor in writing, their liability remains in place.
Recovery and Enforcement
If the borrower defaults, the lender must first make a formal demand to the borrower. If the borrower still fails to pay, the lender is legally allowed to pursue recovery from the guarantor. The lender can deduct money from the guarantor’s savings (in SACCOs), seize secured assets, or seek court orders for repayment.
In SACCOs, recovery from guarantors is common and often automatic. SACCO by-laws usually permit deductions from the guarantor’s savings or shares if the borrower defaults, without needing court intervention. However, this must still follow due process.
Legal Protections for Guarantors
The Kenyan legal system provides important protections to prevent abuse of guarantors. For example, if a lender fails to disclose important information, engages in misrepresentation, or changes the loan terms without the guarantor’s consent, the guarantor may seek legal redress or even be discharged from liability.
Moreover, SACCOs regulated by the SACCO Societies Regulatory Authority (SASRA) are expected to maintain transparency, fairness, and due diligence when enforcing loan guarantees.
Author: Andrew Walyaula
Andrew Walyaula is a seasoned multimedia journalist. waliaulaandrew0@gmail.com
