The Rights of SACCO Loans Guarantors

Many SACCOS require that loans to members must be guaranteed by a guarantor or guarantors. A guarantor is a person that come in to satisfy the debt in the event that the principal debtor fails to service the loan.

The Co-operative Tribunal in Michael Muhuyi Kiveu v IG Sacco Limited [2022] eKLR has guided that guarantors are like the back-up plan for the Creditor, and only become relevant once the Debtor lacks facilities and/or ability to pay the debt. According to the Tribunal, a guarantor must not be treated as a principal debtor. Their role sets in once the principal debtor has been pursued, and all possible avenues of compelling the principal debtor have been exhausted.

From a review of its decisions, the tribunal holds the position that guarantors should not be the first call once the principal debtor defaults payment of a loan. The practice of pursuing guarantors on the first instance has the effect of diminishing availability and willingness of guarantors to execute loan agreements in support of principal debtors, which negatively affects the businesses of most SACCOS.

The requirement that the creditor exhaustively pursues the debtor before turning to the guarantor does not diminish the creditor’s rights. It is only meant to ensure that guarantors have a secondary obligation as per the contract of guarantee.

Once the guarantor is called upon to make good the principal debtor’s loan and does so, he is discharged from his duty. The guarantor is afterwords entitled to recover the amount paid to the creditor from the principal debtor. The Co-operative Tribunal has stated in Murambi & 3 others v Kariuki (Tribunal Case 183 of 2021) [2022]?KECPT?894?(KLR) that “The respondent cannot sit pretty and not pay up because the guarantors did what he neglected to do”.

Morris M. Mutegi