Malawian judge, Justice Michael Mtambo, has asked the country’s Members of Parliament to pass legislation to protect borrowers from rampant exorbitant bank interest rates and penalties just as other countries such as Kenya and Zambia have done.
He made the appeal in his judgement made on 2nd July, 2017 when he ruled in favour of a businessman who had borrowed from Inde Bank but when he had finished repaying he loan, the bank is reported to habe punished him by charging an extra K57 million — over and above what he had already fully paid back — as interest.
It is reported hat the plaintiff borrowed K308 million from Inde Bank. He struggled to pay back, though he finished settling the debt five months later than agreed but the man found that to be extortionist and sued Inde Bank, asking it to pay back the K57 million and interest thereon.
In his ruling Justice Michael Mtambo said It is the plaintiff had proved his case to the requisite standard of proof on a balance of probabilities and the claim succeeds.
“I therefore enter judgment in favour of the plaintiff for the sum of K56, 864,112.90 and interest thereon as claimed plus15% debt collection costs. I hereby proceed to make the following declarations and orders:
“That where there has been a default by a borrower in a banker/customer relationship, the law and equity will operate to ensure that the only money the banker gets is that which would compensate for the financial prejudice occasioned by the actual default and no more.
“That, in the circumstances of this case, requiring the plaintiff to pay penalty on default interest in the event of failure to pay the agreed instalments by the due date was a penalty in terrorem of the primary obligation to pay the principal and normal interest on the due dates, and therefore unenforceable.
“That the penalty clause agreed upon by the plaintiff and the defendant is and was void as a penalty.
“That the defendant repays the plaintiff the sum of K56,864,112.90 which was charged and collected as penalty interest together with interest at 1% above the defendant’s lending rates from the date each component of the sum of K56,864,112.90 was charged to date of this judgment.
“That the defendant pays debt collection cost of 15%on the said sum of K56,864,112.90 and interest.”
Mtambo concluded by saying although he would have been more than happy to so hold, this judgment is not blanket authority that penalty interest is not recoverable.
“To do so would be inconsistent with the case law I have discussed in this judgment. It would also amount to judicial activism influenced by trends in Kenya and Zambia which have specific legislation dealing with the matter.
“It is therefore hoped that, taking into account several factors peculiar to Malawi, the legislature passes legislation to protect borrowers from rampant exorbitant bank interest rates and penalties as other countries such as Kenya and Zambia have done and not leave this relief to judicial pronouncements based on the common law, equity and the Loans Recovery Act.
“After all, the unfortunate part is that equitable relief varies from one bench to another depending on ‘the length of the judge’s foot’,” Jusrice Mtambo concluded.