It is a relief for Savings and Credit Co-operative Society(SACCO) members who guarantee loans to others.
This follows a bill that seeks to protect guarantors who sign up when borrowers in financial institutions, including banks or Saccos, take up loans and then default on their repayments.
The Law of Contract(Amendment) Bill 2023, which is being sponsored by Simon King’ara, Member of Parliament for Ruiru, seeks to amend Section 3 of this Act to shield guarantors from the auctioneer’s hammer when those they have guaranteed fail to meet their debt obligations.
This Bill intends to shield the assets of guarantors, requiring that all lending institutions, including Banks and Saccos, first go for the defaulter’s properties-including shares or unpaid dividends/rebates before targeting those held by a guarantor(s).
According to Mr King’ara, the Bill requires that a lender first realizes the assets of the defaulter before pursuing the guarantor. He made these remarks while appearing before the Justice and Legal Affairs Committee in Parliament.
This Bill is another attempt to protect guarantors, following a similar one that was approved and passed by the 12th Parliament but could not receive a nod from former President Uhuru Kenyatta, who sent it back to the House with his recommendations and reservations attached to it.
At present, the Sacco Act requires that a Sacco society shall have a first charge against deposits and share capital and upon any dividend or interest payable to a member for any debt due to the Society from the member, either as a guarantor or endorser of a loan or credit facility or for any other obligation.
According to the Sacco law, all loans must be secured by at least three guarantors who should also be members of the said Society or lender. This guarantor(s) must also have a total deposit that is equal to or more than the amount the borrower is seeking.
A guarantor or borrower can also apply to the Sacco officials or the management committee to have them removed from the list of guarantors.
Apart from deposits held in a Sacco, a member may also secure a loan facility by giving out share certificates, title deeds or insurance policy documents upto their surrender value.
In case a guarantor passes on or exits the Society, a borrower is required to find a replacement within 30 days.
According to Sacco Societies Act No 14, 2008, where security is required concerning a loan, the Sacco Society may accept as security against any loan, an endorsement by a guarantor or co-guarantor, assignment of an interest in real or personal property, deposits or wages of the borrower or any collateral as may be prescribed by the SASRA.
To deal with insider lending, the Sacco Act states that no director, officer, employee or member of the board of a Sacco shall act as a guarantor of any person concerning a loan advanced or credit facility granted to a person by that Society.
