Key Insight: Kenyan courts are decisively pushing back against exploitativelending—whether by regulated banks or private individuals. Two recent decisions drawclear boundaries around contractual enforcement, especially where oppressive interestrates are involved.
In Stanbic Bank Kenya Ltd v. Santowels Ltd, the Supreme Court of Kenya interpretedSection 44 of the Banking Act to require prior regulatory approval before banks canincrease lending rates. Stanbic’s unilateral adjustments, made without approval, were foundunlawful. The Court affirmed a KShs. 10.4 million award to the borrower, reflecting excessinterest charged.
In contrast, Kanwal Sarjit Singh Dhiman v. Keshavji Jivraj Shah addressed an informal loanagreement between individuals. The respondent advanced KShs. 7 million at 36% interestcompounded quarterly—terms which could have ballooned a KShs. 4 million balance toKShs. 69 billion. The Court of Appeal declared the contract void for unconscionability,cancelling a title transferred under a now-vacated ex parte judgment.
Similarities:
- Both decisions invalidated interest claims for violating either statutory approval mechanisms (Stanbic) or equitable limits on fairness (Dhiman).
- Each court required restitution only of the original principal or actual sums received, reinforcing the doctrine of unjust enrichment.
- Both courts established that courts will intervene when contractual terms “shock the conscience,” even if executed with formal compliance.
Key Distinctions:
- Stanbic involved a licensed financial institution; Dhiman involved private lending.
- The former hinged on regulatory compliance; the latter on equitable scrutiny.
- While Stanbic was resolved under the Banking Act, Dhiman rested on equity and contract doctrine.
Implications for Lenders and Borrowers:
These decisions collectively send a powerful message:
- Banks must comply with Section 44 before varying interest.
- Private lenders cannot hide behind freedom of contract where terms are manifestly oppressive.
- Courts will restore equity—even where statutory rules are silent—where borrowers face unjust burdens.