Banks count on mediation to unlock Sh39bn tied in courts

Banks are counting on mediators to unlock up to Sh39 billion tied up in court cases to release the money back into circulation and ease the burden of fighting thousands of costly cases pending in commercial courts.

The lenders say the process presents a creative solution to resolve disputes, mostly linked to loan repayment terms, within a short period and in a cost-effective manner while preserving the relationship with customers.

Chief Justice Martha Koome disclosed on Thursday, that 12,213 bank-related matters involving Sh55 billion have been referred to a mediation process with 5,048 of them having been resolved and unlocking about Sh16 billion.

Now banks are counting on the growing popularity of court-annexed mediation — an alternative dispute resolution process where parties resolve their disputes with the help of an accredited third mediator under the supervision of the court — to unlock Sh39 billion.

Speaking at the inaugural mediation summit themed Banking and Mediation: Leading the way, Kenya Bankers Association (KBA) chairperson John Gachora said banks would be setting up mediation suites to make this the first approach in sorting issues with customers.

“To transform our economy and attract domestic and foreign investments, we must disrupt the way we resolve our commercial disputes.

“The lengthy court process prevents parties from accessing their funds, obtaining finances from banks and damaging business relations,” said Mr Gachora.

“We seek to fully embrace mediation in resolving customer challenges, reducing commercial courts backlog and releasing capital to the economy.”

The Chief Justice said the average turnaround of matters referred to mediation has dropped to 76 days compared to the previous 87 days in 2017 as opposed to the many months or years taken through the formal court processes.

“It is evident that the court-annexed mediation has contributed immensely towards the reduction of case backlog and an improved business environment in our country,” said the

The number of accredited mediators has risen from 74 in 2016 to 1,166 in the process, with 134 courts now able to handle court-annexed mediation matters.

Central Bank of Kenya (CBK) governor Patrick Njoroge said mistrust and dissatisfaction of customers in their dealings with banks have been on the rise and mediation will provide a route to reverse this.

“This is evidenced by the rising number of complaints that the CBK receives from customers. The CBK is aware of the negative implication that long litigation has on the economy. Delayed conclusion of commercial disputes impacts the circulation of funds in the economy,” said Dr Njoroge.

He said mediation is aligned with the CBK Kenya banking sector charter that was issued in 2019 to promote customer-centric business models and entrenchment of ethical culture in banking.

Retired Chief Justice Willy Mutunga in 2015 created the Mediation and Accreditation Committee to come up with guidelines for successful mediation.

Justice Fred Ochieng, Court of Appeal judge and chairperson of the Court Annexed Mediation Task Force, Kenya said the courts have now introduced private mediation which allows parties to settle matters and register them in court.

Previous estimates by the KBA showed banks were spending between Sh0.5 million to Sh1 million per court case while customers pay Sh100,000 to 200,000 on litigation.

“Banks spent a lot of money on lawyers, both in-house and external, not to mention the paperwork you have to deal with. It is costly,” said Mr Gachora on Thursday.

A 2017 justice needs assessment survey by the Judiciary revealed that only 10 percent of Kenyans could access the formal justice system, meaning that 90 percent are either avoiding litigation or relying on alternative dispute resolution.

The Judiciary in April 2016 launched the Court Annexed Mediation Pilot project with KBA, setting the stage for increased use of mediation.

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