- What is the in duplum rule
- The Latin expression “in duplum” comes from the term “in duplo,” which means “in twofold.”
- The Roman Dutch law is where the principle first appeared. In essence, it states that once the balance of unpaid interest and capital is equal, interest no longer accrues.
- It is a well-established principle in the legal system that interest, whether simple or compound, ceases to accrue on any amount of capital owing once the accrued interest equals the amount of capital outstanding, whether the debt arises as a result of a financial loan or any contract under which a capital sum is payable together with interest at a fixed rate.
- The in duplum principle was the most important development brought to the banking industry in 2006 as a response to the interest rate difficulties. The Banking Act’s Section 44 A was changed and implemented to include the in duplum rule in the Banking sector.
2. Justification and Purpose.
- The rule is intended to enforce financial discipline on the creditors and safeguard debtors from being exploited by creditors who make them pay unregulated fees.
- One must go through the numerous situations in Kenya where the amount of interest that borrowers have been saddled with by the lenders in the event of default in order to better comprehend the public policy motivation for this legislation.
- In Pelican Investment Ltd v. National Bank of Kenya Ltd 2 EA 488, it was claimed that a debt of Kenya Shillings 10 Million had increased by more than thirty times to Kenya Shillings 316 Million, making it the most bizarre, unconscionable, and extortionist of all!
3. Current Development on the Principle.
- In Anne J. Mugure & 2 Others vs Higher Education Loans Board (2022) EKLR Honourable Justice Mabeya held as follows:
“From the foregoing, the Court of Appeal was alive to the fact that the rule was concerned with public interest. In my view, the rule was introduced in our Laws to tame the appetite of Lenders who had made recovery of interest on advances a cash cow. Simply put, the Legislature was expressing its displeasure with lenders who left amounts of advances to go over the roof due to interest before pouncing on the hapless borrowers. “
- The Implication of this Judgement is that the decision is essentially a judicial safeguard against lenders for customers. This is due to the fact that a sizable portion of Kenyans borrow money from financial institutions other than banks, such as shylocks, online lenders, and microfinance organizations, which operate heedlessly in order to harvest unconscionable maximum earnings. There is agreement, according to many publications, including those of the Central Bank, that Kenya’s new “shylock” economy is on the rise. This is demonstrated by the Central Bank’s efforts to regulate digital lenders, which led to the Central Bank of Kenya (Digital Credit Providers) Regulations, 2021.