Commercial Banks and Saccos can now report loan guarantors with the Credit Reference Bureau (CRB), should the principal borrower default on the payment.
The landmark ruling was made in a case where Obadiah Gitonga had sued Co-operative Bank of malice by listing him with the CRB after a school he guaranteed defaulted on a loan.
In her judgment, Justice Grace Nzioka ruled, “The referral of any information to the CRB is a requirement of the law and the defendant as a financial institution is entitled to do the same.”
She refused to grant Obadiah’s prayer that the bank delists him by explaining that his lack of knowledge about the defaulted payment did not release him from the contract, adding that he should have settled the amount when he learned of the same.
The plaintiff had guaranteed loans advanced by Chogoria Junior School, where he is a director, using two parcels of land.
The bank served him with notice that the school had defaulted and allowed him to dispose of the land to clear a Ksh952,262 debt.
Details then emerged of a Ksh133,000 debt in a separate loan account, which he denied any knowledge of.
He argued that he learned about the outstanding amount after a bank rejected his loan application because he was already listed with the CRB.
The court also declined to award him Ksh215.8 million as damages and lost earnings that he accrued after his loan application was turned down.
The decision is expected to affect the activities of lenders who require guarantors to disburse credit.