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HELB interest rate on loans unconstitutional, High Court rules

According to the High Court, the lender contravened Article 43 (1) (e) and (f) and Article 27 of the Constitution of Kenya by imposing unreasonable interest rates.

The Higher Education Loans Board (HELB) loan interest rated have been ruled unconstitutional by the high court, pitting the lender against university students who rely on institution to fund their education.

According to the High Court, the lender contravened Article 43 (1) (e) and (f) and Article 27 of the Constitution of Kenya by imposing unreasonable interest rates.

“A declaration hereby issues against the respondent (HELB) that by imposing interest amounts and penalties or fines that exceed the principal amount, the respondent is in contravention of Article 43 (1) (e) and (f) and Article 27 of the Constitution of Kenya,” said Justice Mabeya in the judgement.

Justice Alfred Mabeya ruled in favour of three beneficiaries of the Helb loans that had challenged the agency’s decision to impose the interest and penalties on their non-performing loans.

The petitioners Ann Mugure, Davis Nguthu and Wangui Wachira argued that the interest rates and penalties were exorbitant and contravened their socioeconomic rights as enshrined in the Constitution.

According to the court, the petitioners on diverse dates borrowed loans from the HELB to facilitate their undergraduate studies, but the exorbitant interests and penalties had made their ability to repay difficult.

Mugure who is a youth living with disability borrowed Sh82,980 in July 2004 at an interest rate of 2 percent and by July, 2016, the debt had accumulated to Sh540,464.

Nguthu borrowed Ksh.146, 090 in July 2016 that shot up to Ksh.335, 207 by March 2021 while Wachira borrowed Ksh.135, 000 in July 2016 that has increased to Ksh.336, 573 by February 2021.

The latest data from HELB shows loan accounts in default currently stand at 94,216 from the 109,661 recorded by February, with unpaid loans standing at Ksh.10.2 billion.

The ruling is a major blow to HELB which had offered a 100 percent penalty waiver from March 1 this year to encourage repayment following the impact of the Covid-19 effects on the economy.

There’s, however, a window for appeal at the Court of Appeal since HELB relies on the rates charged to fund its activities and stay afloat.

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