Attorney General should amend land laws, save hapless borrowers

The Attorney General should listen to the plea by banks and other financial institutions to amend the land laws to avoid what they term a logistical nightmare in auctioning off property used to secure loans.

But after listening to all the legal arguments, the chief legal government adviser should only institute those changes that strengthen the rights of hapless borrowers, the majority of whom are not versed in the law of contract.

Were the bankers to be honest with themselves, they would admit that some of their members have done a great disservice to them by taking advantage of the general ignorance of borrowers and selling off their property used as collateral for a song. At times, the sale is done in such a callous manner that all the people who witness it vow never to set their feet in a bank looking for a loan.

Last month’s landmark case involving a local bank and a businessman whose property was set to be sold off illustrated the new reality check that the Kenya Bankers Association have to contend with as they go about their business. A judge stopped a local bank from auctioning off a piece of property valued at Sh43.2 million at the time to a borrower who took a Sh6 million loan.

In the past, the bank would have auctioned off the property for whatever amount it chose and usually to a well-connected individual. The law the bankers’ umbrella body wants changed now demands that a fresh valuation be carried out to determine the current market price and then ensure it is not sold for less than 75 per cent of that new higher value.

That would, in this case, ensure the property is sold for so much more than the outstanding loan amount that the borrower would get enough money to start afresh.

Law of equity

The law of equity that seeks to restore both parties to a contract to the same circumstances in which they were before demands that the AG does not tamper with this section of the law. The banks have abused the discretionary powers conferred on them under the old law so much that they have discouraged a great number of prospective borrowers from accessing loans to start or expand their businesses. This has undermined the government’s efforts to grow the economy.

Perhaps the part of the law that needs a fresh look leading to possible amendments is where the banks require the consent of both spouses before selling off the property used as collateral. The difficulties the banks are citing of knowing, let alone tracing, the spouses in a country that does not have a marriage registry with a list of spouses where an official search can be conducted has merit.

The situation would be even more complicated in situations where the spouses are living separately and were married or re-married under customary law.

Obviously, the country would owe the AG a vote of gratitude were he to strengthen the law that would encourage banks to adopt character-based lending more widely than they are doing at present.