Oftentimes, banks have pounced on guarantors, especially those with attractive collateral before exhausting all options available with the principal borrower.
There needs to be a regulation that ensure that saccos vigorously pursue the borrowers before acting on guarantors.
In essence, if the amendments are passed, the lenders will have to be more responsible.
The proposed amendments to the law of contracts in order to force banks to pursue loan defaulters before recovering the debt from guarantors is certainly an idea that is long overdue.
Oftentimes, banks have pounced on guarantors, especially those with attractive collateral before exhausting all options available with the principal borrower.
This is because the law, as it is, is silent on the order of actions in the event of a default. Banks have taken advantage of this to pounce on the more liquid assets without regard to the hierarchy of responsibility for debt.
And in doing so, banks have often disregarded the rules of natural justice causing the MPs to seek the enactment of a law that obligates the lenders to do not just what is legal, but also what is right.
It is our considered view that the proposed law should also cover savings and credit co-operative societies (saccos), where guarantors of borrowers face similar predicaments.
There needs to be a regulation that ensure that saccos vigorously pursue the borrowers before acting on guarantors.
In essence, if the amendments are passed, the lenders will have to be more responsible.
They will have to be more diligent when assessing the quality of collateral, knowing that their obligation will be to first pursue the principal borrower. Besides, the proposed law can help enforce accountability on borrowers who are likely to abuse the goodwill of guarantors by intentionally defaulting on their loans
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