Court ruling confirms reach of the 'In Duplum Rule' in debt recovery by lenders

A recent High Court decision in Chuka has brought renewed attention to the in duplum rule, an often overlooked but highly consequential legal principle in Kenya’s lending landscape.

At its core, the rule limits the amount of interest a lender can recover, ensuring it does not exceed the principal loan amount.

While this may appear technical, its implications are far-reaching, particularly for borrowers at risk of spiralling debt.

In the case involving Faulu Microfinance Bank and a defaulting borrower, the court upheld the application of the rule, reinforcing its role as a safeguard against excessive interest accumulation.

The lender had sought to recover over Sh621,000 from a loan initially advanced at Sh569,000.However, the court declined to award the full amount, citing statutory protections under the Banking Act.

The in duplum rule is a legal principle that limits how much interest a lender can charge on a loan once the borrower defaults.

Once a loan becomes non-performing (i.e. the borrower stops paying), the total interest stops accumulating when it equals the original principal.

• If you borrowed Sh100,000

• Interest can only grow up to Sh100,000

• The maximum recoverable total becomes Sh200,000 (principal + interest)
  Beyond that point, no further interest can be charged.

The rationale behind the in duplum rule is rooted in fairness.

As the Court of Appeal previously observed, the duplum rule is concerned with public interest and its key aim was to protect borrowers from exploitation by lenders who permit interest to accumulate to astronomical figures.

This principle ensures that borrowers are not trapped in a cycle where debt grows endlessly due to compounding interest.

In this case, the High Court reaffirmed that such protection is not limited to traditional banks. It extended the rule to microfinance institutions, noting that borrowing is borrowing and it would be inequitable for one group in society to be treated differently.

This interpretation broadens the reach of the rule, signalling that all lenders—regardless of classification, must adhere to its limits.

One notable aspect of the judgment is that the borrower did not contest the case. Despite this, the court did not simply grant the lender’s claim in full.

Instead, it actively applied the law to ensure fairness. This underscores a critical point: courts are not passive arbiters but are tasked with upholding legal standards, even in unopposed proceedings.

By rejecting the lender’s argument that contractual terms should be enforced as agreed, the court emphasised that statutory protections override private agreements where necessary.

While the in duplum rule offers clear benefits to borrowers, it is not without consequences. Limiting recoverable interest may prompt lenders to reassess their risk exposure.

In practice, this could lead to stricter lending criteria, higher upfront charges, or reduced access to credit, especially for high-risk borrowers.