banking and finance ENSight | 17 January 2018

Introduction of the in duplum rule in Rwanda

by Dieudonné Nzafashwanayo

The third quarter of 2017 saw a number of changes in the regulatory framework of the Rwandan financial sector, the most significant of which included a change in the law governing the regulator of the financial sector (the National Bank of Rwanda) and the enactment of the New Banking Act governing the organisation of banking, both of which were gazetted in October 2017. The New Banking Act brought about many changes, but one that will affect banking business most significantly, particularly in the lending market, is the introduction of the in duplum rule. 

In duplum directly translates to “double the amount”, but in law the in duplum rule provides that arrear interest ceases to accrue once the sum of the unpaid (accrued) interest equals the amount of capital outstanding at the time (and not the amount of capital originally advanced). To illustrate the in duplum rule, if someone borrows RWF5-million and had already repaid RWF3-million, under the in duplum rule, the cap of interest to be paid at the time of recovery is RWF2-million ie, the borrower’s total obligations cannot be more than RWF4-million.

This rule, which is based on South African common law and has its roots in ancient Roman and Dutch law, was previously unknown to the Rwandan lending market and is now expressly provided for under article 112 of the New Banking Act, where it states that: 

“A bank is limited in what it may recover from a debtor with respect to a nonperforming loan to the following maximum amount: (1) the unpaid balance of the principal when the loan becomes nonperforming; (2) interests, in accordance with the contract between the debtor and a bank, not exceeding the principal owed when the loan becomes nonperforming; (3) expenses incurred in the recovery of any amounts owed by the debtor.”

Although the in duplum rule is very new in the Rwandan legal system and is yet to be interpreted by Rwandan courts, its introduction will certainly work well for borrowers who have at times in the past had to pay three times or more the principal originally advanced. The rule, therefore, enhances borrowers’ protection from potential exploitation by banks.

The New Banking Act also sends a strong message to lenders who delay in recovering non-performing loans by enforcing their security and end up recovering more than twice the outstanding principal from borrowers. 

Lenders must now take into consideration the in duplum rule when structuring their funding transactions. For instance, when funding transactions are structured such that the loans (principal and interest) will only become repayable after some time, during which period interest accrues on a compounded basis, it may happen that the aggregate accrued and unpaid interest reaches the amount of the unpaid capital. At this point, in accordance with the New Banking Act, interest would cease to accrue. 

Reviewed by Désiré Kamanzi, head of ENSafrica in Rwanda.

 

Dieudonné Nzafashwanayo

ENSafrica Rwanda | associate
dnzafashwanayo@ENSafrica.com
cell: +250 733 300 305

add to Outlook contacts

print



No information provided herein may in any way be construed as legal advice from ENSafrica and/or any of its personnel. Professional advice must be sought from ENSafrica before any action is taken based on the information provided herein, and consent must be obtained from ENSafrica before the information provided herein is reproduced in any way. ENSafrica disclaims any responsibility for positions taken without due consultation and/or information reproduced without due consent, and no person shall have any claim of any nature whatsoever arising out of, or in connection with, the information provided herein against ENSafrica and/or any of its personnel. Any values, such as currency (and their indicators), and/or dates provided herein are indicative and for information purposes only, and ENSafrica does not warrant the correctness, completeness or accuracy of the information provided herein in any way.

 

feedback

Please fill in the form below to send us any queries, requests, feedback, suggestions - we'd love to hear from you:
 *
 *
 *
 *
 

 

latest news

 

our awards

African Legal Awards Chambers and Partners Rankings DealMakers Awards Global Competition Review 100 (GCR100) Rankings IAM Patent 1000 Rankings IFLR1000 Rankings International Tax Review (ITR) Rankings Legal 500 Rankings Managing Intellectual Property (MIP) Rankings World Trademark Review 1000 (WTR 1000) Rankings
info@ENSafrica.com | level 2 BBBEE rating (South Africa)