1. This is an appeal from the decision of the court dated 5th January 2024 in the Nairobi SCCCOMM No. E7484 of 2023, in which the Court partially allowed the Appellant’s claim of Kshs. 640,000/- plus costs and interest at court rates against the Respondent.
2. A background of the matter is that by a Statement of Claim dated 18th September 2023, the Appellant herein sued the Respondent to recover the principal loan of Kshs. 200,000/- plus interest advanced by the Appellant to the Respondent. The loan, which was advanced on or about November 2022, was to be repaid at a monthly interest of 20%. The Respondent failed to repay the loan, and at the time of the Claim, the same had accumulated to Kshs. 640,000/-.
3. The Respondent did not file any response to the Claim in the lower Court despite having been served.
4. Upon consideration of the claim, the Honourable Adjudicator found that from the evidence adduced, the parties had indeed entered into a loan agreement and agreed to a monthly interest rate of 20%. The court, however, found the rate of interest charged by the Appellant to be unreasonable, oppressive, and in violation of the in duplum rule.
5. Consequently, the court allowed the Appellant’s claim in the principal sum of Kshs. 200,000/- plus costs and interest at court rates from 1/12/2022, being the date the first installment was due.
6. Dissatisfied with the entire judgement rendered by the lower court, the Appellant vide her memorandum of appeal dated 15/1/2024 filed the instant appeal against the decision to this court on the following grounds: -
“a) The Small Claims Court erred in law and fact by failing to appreciate the fact that the Appellant herein is not a banking institution and hence the in duplum rule cannot suffice in this instance.
b) The Small Claims Court erred in law in finding that the Respondent ought not to abide by the contractual terms entered into in November 2022.
c) The Small Claims Court erred in law and fact by failing to recognize the existence of a contract and that there existed sufficient proof of debt admission.
d) The Small Claims Court erred in failing to award judgment in favor of the Appellant arising from the breach of contract.”
7. The appeal was canvassed by way of written submissions. The Appellant’s submissions are dated 15th October 2025. At the time of writing this judgment, the Respondent had not filed submissions in response to the instant appeal.
8. The Appellant in her submissions, the Appellant submitted that the lower court erred in finding that the rate of interest charged under the agreement violated the in-duplum rule. This, according to the Appellant, ignored the express agreement between the parties on the applicable interest.
9. Citing the among others, the decision in the case of Momentum Credit Limited v. Samuel Mbugua Ikumbu (2021) eKLR, the Appellant asserted that the lower court erred and failed to appreciate that the in duplum rule only applies to banking institutions by the authority of Section 44A of the Banking Act.
10. The Appellant also submitted that the lower court, in ignoring the contractual interest rate, erred by failing to enforce the terms of the agreement between the parties contrary to the principle in the case of National Bank of Kenya Ltd v. Pipeplastic Samkolit (K) Ltd & Another (2001) eKLR.
11. The Appellant, therefore, prayed that the appeal be allowed and the lower court’s decision of 5th June 2024 dismissing the claim be set aside and substituted with a judgment of this court allowing the Claim.
Analysis and determination:
12. This is an appeal from the Small Claims Court. Section 38 of the Small Claims Court Act clothes this court with Appellate jurisdiction on matters arising from that court in the following terms:
“38. (1). A person aggrieved by the decision or an order of the Court may appeal against that decision or order to the High Court on matters of law.
(2) An appeal from any decision or order referred to in subsection (1) shall be final.”
13. It therefore follows that appeals originating from the Small Claims Court to this court can only be on the points of law in terms of Section 38(1) of the Small Claims Act. Consequently, this court cannot, in such appeals, entertain an invitation to interfere with the trial court's factual findings.
14. The duty and jurisdiction of this court when dealing with an appeal from the Small Claims Court is comparable to that of the Court of Appeal when dealing with a matter on a second appeal. In Kenya Breweries Ltd v Godfrey Odoyo [2010] eKLR the Court of Appeal, in distinguishing between issues of law and matters of fact stated as follows: -
“First, this is a second appeal. In a first appeal, the appellate court is by law enjoined to revisit the evidence that was before the trial court and analyze it, evaluate it, and come to its own independent conclusion. In other words, a first appeal is by way of a retrial and facts must be revisited and analyzed a fresh, - see Selle and Another vs. Associated Motor Boat Company Ltd and Others (1968) EA 123. In a second appeal however, such as this one before us, we have to resist the temptation of delving into matters of facts. This Court, on second appeal, confines itself to matters of law unless it is shown that the two courts below considered matters, they should not have considered or failed to consider matters they should have considered or looking at the entire decision, it is perverse.”
15. I have considered the grounds of appeal as presented by the Appellant. I note that the main complaint by the Appellant against the decision of the trial court is that the court erred in its finding that the rate of interest charged under the agreement violated the in-duplum rule. The first legal question for this Court to determine is whether or not the in duplum rule applies to the subject loan transaction between the Appellant and the Respondent.
16. On in duplum Rule, Section 44A of the Banking Act provides as follows; -
“44A.Limit on interest recovered on defaulted loans.
1. An institution shall be limited in what it may recover from a debtor with respect to a non-performing loan to the maximum amount under subsection (2).
2. The maximum amount referred to in subsection (1) is the sum of the following—
a. the principal owing when the loan becomes non-performing;
b. interest, in accordance with the contract between the debtor and the institution, not exceeding the principal owing when the loan becomes non-performing; and
c. expenses incurred in the recovery of any amounts owed by the debtor. [Emphasis added]
17. The term ‘institution’ is defined under Section 2 of the Banking Act to mean “a bank or financial institution or mortgage finance company. On the other hand, the term ‘’financial institution’’ is defined as a company other than a bank, which carries on or proposes to carry on financial business and includes any other company which the minister may by notice on the gazette, declare to be a financial institution for the purposes of the Act.
18. Further, the term “financial business’’ is also defined under the Act to mean:
“a. The accepting from members of the public of money on deposit repayable on demand at the expiry of a fixed period or after notice, and
b. the employing of money held on deposit or any part of the money by lending, investment, or in any other manner for the account and at the risk of the person so employing the money.”
19. From the above definition, it is obvious that to fall under Section 44 of the Act, it is necessary to prove that the Appellant is either a bank or a financial institution. The converse is also true.
20. In the instant case, it is clear from the record of appeal that the Appellant is an individual and was neither a bank nor a financial institution as understood under Section 44A of the Banking Act. Consequently, agree with the Appellant’s submissions that the in-duplum rule did not govern and or apply to the transaction in question. I endorse the decision in the case of Momentum Credit Limited vs Kabuiya (Civil Appeal E035 of 2022) [2022] eKLR where Majanja J reached a similar conclusion and stated that:
“For purposes of section 44, it must be established that the Appellant is a bank or financial institution. It is not in dispute that the Appellant is neither a bank nor a mortgage finance company. In order to qualify as a financial institution, the Appellant must either be gazetted as such by the Minister or be one that carries on or proposes to carry on financial business as defined under the Banking Act. In order to qualify as a financial institution, it must accept money on deposit from members of the public and employ that money or part of it for lending or investment as contemplated under the Act.”
13. However, in the present appeal, I note from the Judgment that the Hon. Adjudicator, in arriving at her decision, stated as follows:
“This Court finds that the rate of interest that the Claimant charged was unreasonable, usurious and oppressive. It is also against ‘Induplum’ rule which basically says that the interest charged should not exceed the principal.”
14. From the above, it is clear that the lower court’s decision was not exclusively based on the fact that the interest charged exceeded the principal contrary to the requirements of the in-duplum rule. The Hon. Adjudicator’s intervention was actually based on the fact that, in the court’s opinion, the interest charged by the Appellant was exorbitant and unconscionable.
15. Courts have consistently ruled that agreements imposing exorbitant, oppressive, or illegal interest rates are unenforceable. In Abdi Mohamed v. Priscillah Njeri Gathoni [2021] eKLR, the court held that when the interest charged is excessive and unconscionable, judicial intervention is required to uphold the principles of equity and fairness.
16. The Court of Appeal in the case of Margaret Njeri Muiruri v Bank of Baroda (Kenya) Limited [2014] eKLR held that:
“It is not for the Court to rewrite a contract for the parties. As this Court held in National Bank of Kenya Ltd vs Pipeplastic Sankolit (K) Ltd. Civil Appeal No. 95 of 1999 …‘a Court of law cannot rewrite a contract with regard to interest as the parties are bound by the terms of their contract.’ Nevertheless, courts have never been shy to interfere with or refuse to enforce contracts which are unconscionable, unfair or oppressive due to a procedural abuse during formation of the contract, or due to contract terms that are unreasonably favourable to one party and would preclude meaningful choice for the other party. An unconscionable contract is one that is extremely unfair. Substantive unconscionability is that which results from actual contract terms that are unduly harsh, commercially unreasonable, and grossly unfair given the existing circumstances of the case (See Black’s Law Dictionary, 9th Edition, Gardner, Ed.).”
17. In Premier Credit Limited v Sielei [2024] KEHC 10275 (KLR), the Court dealt with a similar issue on the unconscionability of contracts. It held:
“In this case, the loan agreement attracted an annual interest rate of 30.36% and the loan of Kshs. 250,000/- would be repaid to a total amount of Kshs. 896,784/- within a period of 84 months. This amount is over three times the principal amount that was borrowed by the Respondent. I do not hesitate to find the same as grossly unfair and disturbingly punitive. Guided by the authority above on unconscionability of contracts, I am of the view that it is grossly unfair for the Appellant to levy such a punitive interest rate.
The loan agreement is thus unconscionable and, on this basis, its enforcement calls for interference by the court. I therefore agree with the finding of the lower court that the interest charged by the Respondent was exorbitant and unconscionable. The Learned Adjudicator was right to subject the loan amount to 13% interest rate based on the prevailing bank interest rate at the time.”
18. I concur with the authorities above. In the present case, the Appellant issued a loan of Kshs.200,000/- to the Respondent at the rate of 20% per month, payable in 4 months. The Respondent defaulted in repaying the amount, leading the loan amount plus interest to balloon to Kshs. 640,000/-. It therefore means that in less than one year, the interest accrued was more than two times the principal amount loaned out. Although the Appellant is not bound by the in duplum rule under the Banking Act, as I have pointed out above, I am of the view that the amount demanded as loan repayment is excessive and disturbingly punitive.
19. In the premises, I find that the lower court did not err in its judgment when it set aside the interest rate of 20 per cent per month and entered judgment against the Respondent for Kshs 200,000 plus costs and interest at court rates from 1st December 2022 being the date the 1st installment was due.
20. The result of the above analysis is that the instant appeal is dismissed with no orders as to costs since the Respondent did not participate in these proceedings.
21. It is so ordered.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT THIS
5TH DAY OF JUNE, 2025
ADO MOSES
JUDGE
In the presence of:
Moses – C/A
Ms. Ndegwa……………..for the Appellant
.N/A……………for the Respondent
2. A background of the matter is that by a Statement of Claim dated 18th September 2023, the Appellant herein sued the Respondent to recover the principal loan of Kshs. 200,000/- plus interest advanced by the Appellant to the Respondent. The loan, which was advanced on or about November 2022, was to be repaid at a monthly interest of 20%. The Respondent failed to repay the loan, and at the time of the Claim, the same had accumulated to Kshs. 640,000/-.
3. The Respondent did not file any response to the Claim in the lower Court despite having been served.
4. Upon consideration of the claim, the Honourable Adjudicator found that from the evidence adduced, the parties had indeed entered into a loan agreement and agreed to a monthly interest rate of 20%. The court, however, found the rate of interest charged by the Appellant to be unreasonable, oppressive, and in violation of the in duplum rule.
5. Consequently, the court allowed the Appellant’s claim in the principal sum of Kshs. 200,000/- plus costs and interest at court rates from 1/12/2022, being the date the first installment was due.
6. Dissatisfied with the entire judgement rendered by the lower court, the Appellant vide her memorandum of appeal dated 15/1/2024 filed the instant appeal against the decision to this court on the following grounds: -
“a) The Small Claims Court erred in law and fact by failing to appreciate the fact that the Appellant herein is not a banking institution and hence the in duplum rule cannot suffice in this instance.
b) The Small Claims Court erred in law in finding that the Respondent ought not to abide by the contractual terms entered into in November 2022.
c) The Small Claims Court erred in law and fact by failing to recognize the existence of a contract and that there existed sufficient proof of debt admission.
d) The Small Claims Court erred in failing to award judgment in favor of the Appellant arising from the breach of contract.”
7. The appeal was canvassed by way of written submissions. The Appellant’s submissions are dated 15th October 2025. At the time of writing this judgment, the Respondent had not filed submissions in response to the instant appeal.
8. The Appellant in her submissions, the Appellant submitted that the lower court erred in finding that the rate of interest charged under the agreement violated the in-duplum rule. This, according to the Appellant, ignored the express agreement between the parties on the applicable interest.
9. Citing the among others, the decision in the case of Momentum Credit Limited v. Samuel Mbugua Ikumbu (2021) eKLR, the Appellant asserted that the lower court erred and failed to appreciate that the in duplum rule only applies to banking institutions by the authority of Section 44A of the Banking Act.
10. The Appellant also submitted that the lower court, in ignoring the contractual interest rate, erred by failing to enforce the terms of the agreement between the parties contrary to the principle in the case of National Bank of Kenya Ltd v. Pipeplastic Samkolit (K) Ltd & Another (2001) eKLR.
11. The Appellant, therefore, prayed that the appeal be allowed and the lower court’s decision of 5th June 2024 dismissing the claim be set aside and substituted with a judgment of this court allowing the Claim.
Analysis and determination:
12. This is an appeal from the Small Claims Court. Section 38 of the Small Claims Court Act clothes this court with Appellate jurisdiction on matters arising from that court in the following terms:
“38. (1). A person aggrieved by the decision or an order of the Court may appeal against that decision or order to the High Court on matters of law.
(2) An appeal from any decision or order referred to in subsection (1) shall be final.”
13. It therefore follows that appeals originating from the Small Claims Court to this court can only be on the points of law in terms of Section 38(1) of the Small Claims Act. Consequently, this court cannot, in such appeals, entertain an invitation to interfere with the trial court's factual findings.
14. The duty and jurisdiction of this court when dealing with an appeal from the Small Claims Court is comparable to that of the Court of Appeal when dealing with a matter on a second appeal. In Kenya Breweries Ltd v Godfrey Odoyo [2010] eKLR the Court of Appeal, in distinguishing between issues of law and matters of fact stated as follows: -
“First, this is a second appeal. In a first appeal, the appellate court is by law enjoined to revisit the evidence that was before the trial court and analyze it, evaluate it, and come to its own independent conclusion. In other words, a first appeal is by way of a retrial and facts must be revisited and analyzed a fresh, - see Selle and Another vs. Associated Motor Boat Company Ltd and Others (1968) EA 123. In a second appeal however, such as this one before us, we have to resist the temptation of delving into matters of facts. This Court, on second appeal, confines itself to matters of law unless it is shown that the two courts below considered matters, they should not have considered or failed to consider matters they should have considered or looking at the entire decision, it is perverse.”
15. I have considered the grounds of appeal as presented by the Appellant. I note that the main complaint by the Appellant against the decision of the trial court is that the court erred in its finding that the rate of interest charged under the agreement violated the in-duplum rule. The first legal question for this Court to determine is whether or not the in duplum rule applies to the subject loan transaction between the Appellant and the Respondent.
16. On in duplum Rule, Section 44A of the Banking Act provides as follows; -
“44A.Limit on interest recovered on defaulted loans.
1. An institution shall be limited in what it may recover from a debtor with respect to a non-performing loan to the maximum amount under subsection (2).
2. The maximum amount referred to in subsection (1) is the sum of the following—
a. the principal owing when the loan becomes non-performing;
b. interest, in accordance with the contract between the debtor and the institution, not exceeding the principal owing when the loan becomes non-performing; and
c. expenses incurred in the recovery of any amounts owed by the debtor. [Emphasis added]
17. The term ‘institution’ is defined under Section 2 of the Banking Act to mean “a bank or financial institution or mortgage finance company. On the other hand, the term ‘’financial institution’’ is defined as a company other than a bank, which carries on or proposes to carry on financial business and includes any other company which the minister may by notice on the gazette, declare to be a financial institution for the purposes of the Act.
18. Further, the term “financial business’’ is also defined under the Act to mean:
“a. The accepting from members of the public of money on deposit repayable on demand at the expiry of a fixed period or after notice, and
b. the employing of money held on deposit or any part of the money by lending, investment, or in any other manner for the account and at the risk of the person so employing the money.”
19. From the above definition, it is obvious that to fall under Section 44 of the Act, it is necessary to prove that the Appellant is either a bank or a financial institution. The converse is also true.
20. In the instant case, it is clear from the record of appeal that the Appellant is an individual and was neither a bank nor a financial institution as understood under Section 44A of the Banking Act. Consequently, agree with the Appellant’s submissions that the in-duplum rule did not govern and or apply to the transaction in question. I endorse the decision in the case of Momentum Credit Limited vs Kabuiya (Civil Appeal E035 of 2022) [2022] eKLR where Majanja J reached a similar conclusion and stated that:
“For purposes of section 44, it must be established that the Appellant is a bank or financial institution. It is not in dispute that the Appellant is neither a bank nor a mortgage finance company. In order to qualify as a financial institution, the Appellant must either be gazetted as such by the Minister or be one that carries on or proposes to carry on financial business as defined under the Banking Act. In order to qualify as a financial institution, it must accept money on deposit from members of the public and employ that money or part of it for lending or investment as contemplated under the Act.”
13. However, in the present appeal, I note from the Judgment that the Hon. Adjudicator, in arriving at her decision, stated as follows:
“This Court finds that the rate of interest that the Claimant charged was unreasonable, usurious and oppressive. It is also against ‘Induplum’ rule which basically says that the interest charged should not exceed the principal.”
14. From the above, it is clear that the lower court’s decision was not exclusively based on the fact that the interest charged exceeded the principal contrary to the requirements of the in-duplum rule. The Hon. Adjudicator’s intervention was actually based on the fact that, in the court’s opinion, the interest charged by the Appellant was exorbitant and unconscionable.
15. Courts have consistently ruled that agreements imposing exorbitant, oppressive, or illegal interest rates are unenforceable. In Abdi Mohamed v. Priscillah Njeri Gathoni [2021] eKLR, the court held that when the interest charged is excessive and unconscionable, judicial intervention is required to uphold the principles of equity and fairness.
16. The Court of Appeal in the case of Margaret Njeri Muiruri v Bank of Baroda (Kenya) Limited [2014] eKLR held that:
“It is not for the Court to rewrite a contract for the parties. As this Court held in National Bank of Kenya Ltd vs Pipeplastic Sankolit (K) Ltd. Civil Appeal No. 95 of 1999 …‘a Court of law cannot rewrite a contract with regard to interest as the parties are bound by the terms of their contract.’ Nevertheless, courts have never been shy to interfere with or refuse to enforce contracts which are unconscionable, unfair or oppressive due to a procedural abuse during formation of the contract, or due to contract terms that are unreasonably favourable to one party and would preclude meaningful choice for the other party. An unconscionable contract is one that is extremely unfair. Substantive unconscionability is that which results from actual contract terms that are unduly harsh, commercially unreasonable, and grossly unfair given the existing circumstances of the case (See Black’s Law Dictionary, 9th Edition, Gardner, Ed.).”
17. In Premier Credit Limited v Sielei [2024] KEHC 10275 (KLR), the Court dealt with a similar issue on the unconscionability of contracts. It held:
“In this case, the loan agreement attracted an annual interest rate of 30.36% and the loan of Kshs. 250,000/- would be repaid to a total amount of Kshs. 896,784/- within a period of 84 months. This amount is over three times the principal amount that was borrowed by the Respondent. I do not hesitate to find the same as grossly unfair and disturbingly punitive. Guided by the authority above on unconscionability of contracts, I am of the view that it is grossly unfair for the Appellant to levy such a punitive interest rate.
The loan agreement is thus unconscionable and, on this basis, its enforcement calls for interference by the court. I therefore agree with the finding of the lower court that the interest charged by the Respondent was exorbitant and unconscionable. The Learned Adjudicator was right to subject the loan amount to 13% interest rate based on the prevailing bank interest rate at the time.”
18. I concur with the authorities above. In the present case, the Appellant issued a loan of Kshs.200,000/- to the Respondent at the rate of 20% per month, payable in 4 months. The Respondent defaulted in repaying the amount, leading the loan amount plus interest to balloon to Kshs. 640,000/-. It therefore means that in less than one year, the interest accrued was more than two times the principal amount loaned out. Although the Appellant is not bound by the in duplum rule under the Banking Act, as I have pointed out above, I am of the view that the amount demanded as loan repayment is excessive and disturbingly punitive.
19. In the premises, I find that the lower court did not err in its judgment when it set aside the interest rate of 20 per cent per month and entered judgment against the Respondent for Kshs 200,000 plus costs and interest at court rates from 1st December 2022 being the date the 1st installment was due.
20. The result of the above analysis is that the instant appeal is dismissed with no orders as to costs since the Respondent did not participate in these proceedings.
21. It is so ordered.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT THIS
5TH DAY OF JUNE, 2025
ADO MOSES
JUDGE
In the presence of:
Moses – C/A
Ms. Ndegwa……………..for the Appellant
.N/A……………for the Respondent