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Kenya

Law and regulation of Covid-19 loan moratoriums in Kenya

Table of contents
  1.  Description of the legislation
    1.  Is there a moratorium on loans legislation implemented in your jurisdiction?
    2. If no: Are there any ongoing discussions regarding a potential introduction of such measures?
    3. What is the name of the relevant legislation (the “Relevant Act”)?
    4. What is the duration of the measures (period of moratorium)?
    5. Does the legislation provide for an extension of the period of moratorium?
    6. Is the moratorium mandatory, or can each borrower opt out should they wish to simply continue payments, or opt in if they want to be protected by the moratorium?
  2. Parties and agreements affected by the Relevant Act
    1. Is the moratorium available for both corporate and consumer loans?
    2. Who are the affected Lenders?
    3.  Does it make a difference whether loans are granted by a foreign entity and governed by foreign law?
  3. Impact on the loan agreements
    1.  Is there a cut-off date with respect to loan agreements to which the Relevant Act will apply (e.g. not applicable to loan agreements entered into after the cut-off date)?
    2.  Does the moratorium apply to principal only, or also to interest and/or fees?
    3. Will the maturity of the loan automatically be extended by the moratorium period?
    4.  Are repayments and interest which have become due and payable under the contract before the Relevant Act has come into force covered by the moratorium?
    5. Will lenders be able to terminate a loan due to an event of default other than non-payment (e.g. breach of financial covenants)?
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1. Description of the legislation

1.1 Is there a moratorium on loans legislation implemented in your jurisdiction?

No.

1.2 If no: Are there any ongoing discussions regarding a potential introduction of such measures?

The Central Bank of Kenya issued emergency measures on 18 and 24 March 2020 directed at financial institutions seeking to alleviate the economic impact of COVID-19 for loans that were up to date as at 2 March 2020. The measures require financial institutions to:  

  • ensure that they offer relief to personal loan holders with loans that were performing as of 2 March 2020 for a period of up to a year based on individual circumstances
  • allow small- and medium-sized enterprises (SMEs) and corporate borrowers economically affected by the pandemic to assess and restructure their existing loan facilities. 

To facilitate these requirements, the Central Bank of Kenya has dropped the lowest rate of interest chargeable on loans (Central Bank Rate) from 8.25% to 7.25% allowing for more favourable lending rates for individuals, SMEs and corporations requiring liquidity to proceed with their operations. 

1.3 What is the name of the relevant legislation (the “Relevant Act”)?

N/A

See point 1.1 above.

1.4 What is the duration of the measures (period of moratorium)?

N/A

See point 1.1 above.

1.5 Does the legislation provide for an extension of the period of moratorium?

N/A

See point 1.1 above.

1.6 Is the moratorium mandatory, or can each borrower opt out should they wish to simply continue payments, or opt in if they want to be protected by the moratorium?

N/A

See point 1.1 above.

2. Parties and agreements affected by the Relevant Act

2.1 Is the moratorium available for both corporate and consumer loans?

The measures recommended by the Central Bank of Kenya are applicable to personal, SME and corporate borrowers. Despite the lack of a relevant law to implement the Central Bank of Kenya’s measures, financial institutions are required to comply with the directives as a part of their compliance requirements under the Central Bank of Kenya Act.  

2.2 Who are the affected Lenders?

Any lender operating legally under the Central Bank of Kenya Act (Cap. 491) and the Banking Act (Cap. 488)

2.3 Does it make a difference whether loans are granted by a foreign entity and governed by foreign law?

The Central Bank of Kenya only regulates financial institutions that operate under the relevant laws applicable in Kenya. 

3. Impact on the loan agreements

3.1 Is there a cut-off date with respect to loan agreements to which the Relevant Act will apply (e.g. not applicable to loan agreements entered into after the cut-off date)?

The measures introduced by the Central Bank of Kenya have been stated to affect only loans that were performing as at 2 March 2020. 

3.2 Does the moratorium apply to principal only, or also to interest and/or fees?

In addition to the moratorium to be offered to borrowers on application, the Central Bank of Kenya lowered the interest chargeable under Central Bank Rates from 8.25% to 7.25%. 

Furthermore, in implementing the said measures, financial institutions will be required to cater for the fees for, and incidental to, restructuring of existing debt facilities. 

3.3 Will the maturity of the loan automatically be extended by the moratorium period?

The measures indicate that financial institutions have discretion to extend the maturity period of the loan for up to one year. 

3.4 Are repayments and interest which have become due and payable under the contract before the Relevant Act has come into force covered by the moratorium?

Financial institutions have been given discretion to determine the manner in which they implement the said measures provided the borrower meets the requirements stimulated by the Central Bank of Kenya.  

3.5 Will lenders be able to terminate a loan due to an event of default other than non-payment (e.g. breach of financial covenants)?

The Central Bank measures ensure that the doctrine of freedom of contracts remains unperturbed despite the pandemic, meaning that borrowers will still need to be cognisant of their obligations under their respective facility agreements. Any variation to the performance of the terms in the loan agreements should be done with the written approval of the financial institution. 

Authors

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Portrait ofJulius Wako
Julius Wako
Partner
Nairobi
Portrait ofStella Situma
Stella Situma
Partner
Nairobi