I&M bank loses case against loan guarantor, defaulter

I&M Bank headquarters in Kigali. The bank wanted the court to authorise the sale of the land used as a guarantee for a loan. PHOTO | CYRIL NDEGEYA 

By Moses K Gahigi

In Summary

• The bank advanced a top up loan worth Rwf135.5 million to coffee processor Socor Ltd in February 2015 based on a guarantee that lapsed. The borrower subsequently defaulted forcing the lender to sue him and the guarantor Kubwimana Cryslogue.
• The court found that the bank was at fault for extending a renegotiated loan to Socor using collateral given for the first loan, without getting the consent of the guarantor.

I&M Bank Rwanda has lost a case against a guarantor it sued alongside a customer who defaulted on a loan. The case is being viewed as a precedent that offers key lessons to lenders.

The bank advanced a top up loan worth Rwf135.5 million to coffee processor Socor Ltd in February 2015 based on a guarantee that lapsed. The borrower subsequently defaulted forcing the lender to sue him and the guarantor Kubwimana Cryslogue.

The bank wanted the court to authorise the sale of the land used as a guarantee for the loan. However, the guarantor said he was not a party to the new transaction.

The court found that the bank was at fault for extending a renegotiated loan to Socor using collateral given for the first loan, without getting the consent of the guarantor.

“There was a renegotiation of the loan but the guarantor was not informed, yet he wrote several letters to the bank requesting to know the status of the loan he had guaranteed. But, no information was given to him, only for him to get a letter asking him to pay,” read part of Mr Kubwimana’s defence.

The guarantor only realised the loan was issued on a different date, after receiving a notice of default from the bank, which subsequently confirmed the demand related to another loan extended using the same guarantee.

“I cannot pay this loan because the bank issued it without informing the guarantor. I needed to understand the new loan, then make a decision and even sign off. It was the responsibility of the bank to do this but it didn’t,” read his defence.

After securing the first loan using the initial collateral from the guarantor, the borrower went ahead and secured another loan using the same guarantee without the consent of the guarantor.

Mr Kubwimana told Rwanda Today that the bank deliberately withheld information from him regarding the loan he guaranteed for the customer.

Although he was a shareholder in Socor at the time he used family land as a guarantee for the loan, he did not do it as a shareholder, but as an individual.
I&M Bank declined to comment on the outcome.

The court ruled in Mr Kubwimana’s favour and ordered Socor to pay back the loan it owes I&M bank including interest. I&M Bank was also ordered to pay Rwf700,000 in legal fees to Mr Kubwimana.

The case sets a precedent for protection of guarantors, who in many cases lose their property to lenders after those they guaranteed default on the loans.

“The guarantor is often ignored in issues of credit acquisition, yet they should be informed about the progress of repayment and in case of any renegotiation,” said Safari Gahizi, Mr Kubwimana’s lawyer.