Kenya's High Court Just Killed "Runaway Interest" for ALL Lenders

High Court rules in duplum interest cap applies to microfinance banks and digital lenders – not just traditional banks

The High Court of Kenya delivered a decision that lawyers are calling "a seismic shift in Kenya's lending landscape" .

The case: Faulu Microfinance Bank Limited v Kilonzo

The facts are simple. A borrower took a loan of Kshs. 569,000 (about $4,400 USD) in 2019. She defaulted in April 2022. By the time the lender went to court, they were trying to recover over Kshs. 621,000 – interest had already exceeded the principal .

The borrower didn't even defend the case. But the trial court still stepped in and invoked the in duplum rule – a legal principle that says interest cannot exceed the principal amount. The court cut the award down to approximately Kshs. 145,000

Why Is This a Bombshell?

Faulu Microfinance appealed. Their argument: "The in duplum rule is in the Banking Act, which applies to banks. We are a microfinance institution, governed by different laws. This rule doesn't apply to us."

The High Court rejected this argument completely .

The court's reasoning is powerful and worth quoting: The judge held that statutory safeguards and public interest principles override unconstrained contractual terms – particularly in asymmetrical lending relationships .

In plain English: When a lender has all the power and a borrower has none, the law must step in to protect the borrower. Even if the borrower doesn't show up to court. Even if the contract says something else.

What Is the "In Duplum" Rule?

Let me explain this in the simplest way possible.

The rule: Interest on a loan cannot exceed the principal amount.

Example: You borrow Kshs. 100,000.

• You default. Interest starts accruing.
• Once the total interest reaches Kshs. 100,000, the clock stops.
• The lender cannot charge you more than Kshs. 100,000 in interest, no matter how long you take to repay.

This prevents "runaway interest" – the phenomenon where a small loan balloons into an unpayable monster because interest keeps compounding forever .

Who Is Affected by This Ruling?

Before April 24, 2026:

Only banks were clearly covered by the in duplum rule. Microfinance institutions, SACCOs, and digital lenders operated in a gray zone. Some argued the rule didn't apply to them at all.

After April 24, 2026:

The court adopted a functional rather than formalistic definition of a "lender." If you lend money, the rule applies to you – regardless of what law you're registered under .

The judge explicitly noted that limiting the rule to banks would create regulatory arbitrage – meaning lenders would simply register as non-banks to escape the cap. The court closed that loophole .

Real Example of What This Stops

Before the ruling:

A digital lender gives you Kshs. 10,000. You miss payments. They keep adding interest and fees. After two years, they claim you owe Kshs. 50,000. You have no legal defense because some lawyers argued the interest cap didn't apply to digital lenders.

After the ruling:

Same loan. Same default. Same two years. The lender tries to claim Kshs. 50,000. You go to court. The judge applies the in duplum rule. Maximum interest = Kshs. 10,000. Maximum total debt = Kshs. 20,000. The lender's claim is cut by more than half .

What the Court Said Directly

The judge emphasized: "Interest cannot be allowed to compound indefinitely beyond the principal sum, regardless of the lending vehicle" .

The court dismissed Faulu's appeal in its entirety .

Step-by-Step Action for Borrowers in Kenya

Step 1: If you have an existing loan with accrued interest that has exceeded or is approaching the principal amount, you may have legal grounds to challenge the interest.

Step 2: Document everything. Keep records of your original loan amount, all payments made, and all interest charges.

Step 3: Seek legal advice. This ruling is new, and lawyers are still understanding its full implications.

Step 4: If a digital lender threatens you with runaway interest claims, know that the court has now closed the loophole. You have a defense.

Step 5: Share this information. Most borrowers don't know about the in duplum rule. You could save someone from paying double what they owe.