The question of whether loan interest in Kenya can exceed the amount borrowed remains a pressing issue for borrowers, particularly as complaints about predatory lending practices grow. The short answer is no. Under Kenyan law, interest on a loan cannot surpass the original principal once the loan becomes non-performing. This safeguard, known as the in duplum rule, prevents runaway debt accumulation. However, its application depends on the type of lender, loan status, and the governing legal framework.
The In Duplum Rule: Borrower Protection
The in duplum rule, derived from Roman-Dutch law and adopted in Kenya, is central to regulating loans in Kenya. It was introduced through the Banking (Amendment) Act of 2007 and is set out in Section 44A of the Banking Act. The rule states that once a loan becomes non-performing, a financial institution can recover:
- The outstanding principal when the loan defaults;
- Interest up to the same amount as that principal;
- Reasonable recovery costs.
A loan is deemed non-performing if repayments are overdue by 90 days, according to the Central Bank of Kenya (CBK). For instance, if a borrower owes KSh 100,000 and defaults with KSh 95,000 outstanding, interest can accrue only up to KSh 95,000. Beyond this, no further interest applies, though recovery expenses may still be charged.
This principle prevents borrowers from facing debt multiples caused by unchecked compounding. Before 2007, some loans carried interest above 30%, leading to debt spirals. Courts have repeatedly upheld the rule, including in KCB Bank Kenya Ltd v. Charles K. Mwangi (2012), where excess charges were nullified.
Interest Rate Controls: Past and Present
Kenya’s lending environment has been shaped by several reforms. Between 2016 and 2019, lending rates were capped at 4% above the CBK base rate, limiting most loan interest to around 13–17%. While this aimed to curb predatory lending, it reduced access to credit for SMEs and riskier borrowers, forcing many toward informal lenders charging 50–100% monthly. The cap was repealed in 2019, restoring flexibility to banks.
As of September 2025, average commercial lending rates stand between 13% and 18%, though unsecured loans can reach 25%. Section 44 of the Banking Act still requires CBK approval before licensed banks raise rates, a rule affirmed by the Supreme Court in Kenya Bankers Association v. CBK (2024).
Application Across Lenders
The in duplum rule initially applied only to banks, mortgage companies, and deposit-taking microfinance institutions. Non-deposit-taking lenders argued exemption, as seen in Momentum Wallets Limited v. CBK (2024). However, a groundbreaking High Court decision in Anne J. Mugure & Others v. HELB (2024) extended the rule to all lenders, including statutory bodies and digital credit providers.
This ruling has major implications for digital loan platforms, which serve over 6.5 million Kenyans and often charge rates ranging from 10% to 36% monthly. If interest on defaulted loans exceeds principal, borrowers may challenge lenders in court. The CBK’s 2025 draft regulations now require such lenders to disclose rates and conduct affordability checks.
What Borrowers Should Know
For long-term performing loans, interest can still exceed the amount borrowed. For example, a 20-year mortgage at 12% may lead to interest payments totaling nearly double the original loan. However, once the loan is classified as non-performing, the in duplum rule applies, capping interest at the outstanding principal.
Borrowers should also be cautious of loan restructuring, which lenders may use to restart the accrual of interest by resetting the loan status. Recovery costs such as legal fees and auction charges are also recoverable but must remain “reasonable” under the law.
Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.