In a landmark ruling poised to reshape Savings and Credit Cooperative Societies (SACCOs) loan recovery practices, the Co-operative Tribunal delivered a clarifying judgment in Tribunal Case No. 251 of 2021. The ruling defines the guarantors’ secondary status in SACCO loan agreements and establishes clear parameters for when they may be required to repay.
The Tribunal reaffirmed that guarantors undertake a secondary obligation, intervening only after a principal borrower’s default is formally communicated. SACCOs must pursue all reasonable efforts to recover the loan from the borrower before targeting guarantors.
This principle was emphasized in Murage v. Umoja SACCO Ltd (2022), where the Tribunal ruled that the SACCO improperly targeted guarantors without first attempting to recover the loan from the principal borrower, a salaried teacher whose employer was not approached for deductions, while guarantors faced threats of asset seizures.
The ruling also clarified that guarantors have the right to demand repayment from the borrower they guaranteed. This right enables guarantors to protect themselves by ensuring the borrowers honours their obligations. In Otieno & others v. Nyota SACCO (2021), the Tribunal held that failing to notify guarantors of a default violated their right to intervene or restructure the guarantee.
Guarantors also play an advocacy role, encouraging borrowers to fulfil their obligations, but they must be formally notified of defaults. The Tribunal criticized SACCOs that bypass this step, unfairly prejudicing guarantors.
The judgment condemned the practice of relying on guarantors as a primary recovery method, particularly when the borrower is traceable and capable of repayment. In Kigen v. Rift Valley SACCO Ltd (2023), the SACCO failed to engage a business owner still operating locally, instead pursuing the guarantors aggressively.
“Why should guarantors suffer losses while the loan defaulter, capable of repaying, remains untouched?” the Tribunal asked, underscoring that the primary burden of loan recovery lies with the borrower.
The Tribunal warned that SACCOs must not penalize guarantors for their own lapses in diligence or failure to enforce borrower contracts. Guarantors exist to facilitate credit access, not to replace borrowers in servicing loans.
This ruling will have significant implications for SACCO operations, promoting fairness, responsibility, and procedural accountability in the cooperative finance sector.
