Muite fights to save his financial turf Story by FRANCIS THOYA Publication Date: 3/13/2007
Ten years ago, Mr Paul Muite came up with an idea to start a flower farming business.
The Kabete member of Parliament approached the National Bank of Kenya with a proposal for a Sh201 million loan to develop the 100-acre farm in Thika.
Mr Paul Muite.But that figure has since spiralled to Sh548 million as the MP engages the bank in a battle over interest it charges him. The money was borrowed through Thugi River Estate Limited, a company he owns, in 1997. Mr Muite had guaranteed the loan as the director of the firm.
The politician, who is also a lawyer, has fought many battles. He is now fighting to save his investment from being auctioned by the bank.
Mr Muite’s case rekindles the memories of the long struggle Kenyans had with commercial banks over the increase in interest rates between 1997 and 2004.
Intended sale
Yesterday, the MP told Lady Justice Roselyn Wendoh in Nairobi that the intended sale of his property by NBK is illegal.
He charged that NBK had imposed unlawful interest rates and penalties on a loan extended to him 10 years ago.
“Your ladyship, how can a bank demand interest rate and penalties that total more than the principal amount that had been extended to me?” Mr Muite asked through lawyer Gitobu Imanyara.
He insisted that the interest rates and the penalties imposed were illegal, arguing that they were inflated.
The MP has further argued that the compound interest imposed on the loan had not been sanctioned by the minister for Finance in accordance with the Banking Act and the Central Bank of Kenya Act.
“Your ladyship there is a clear violation of the Banking Act and CBK Act and this court should not allow the sale of my client’s property,” Mr Imanyara submitted
Mr Muite has gone to court to challenge the interest rates imposed on the Sh201 million NBK loan.
The bank has advertised the MP’s prime property in Thika for sale.
Apart from stopping the sale, the legislator has requested a fresh account of his loan and the removal of all interest rates and penalties imposed by the bank.
The flower farming project ran into problems in 2000 prompting the bank to recall the loan.
NBK has insisted that before proceeding to advertise the sale proposal, Mr Muite and the firm linked to him had conceded that the debt was due and payable.
The problems between the two parties started on January 19, 2006, when NBK placed an advertisement in the Press seeking to auction Mr Muite’s property.
Mr Imanyara said that at the time, his client had moved to Milimani Commercial Courts where he secured interim orders stopping the sale.
“As the interim orders subsisted, the bank proceeded to place my client’s property for sale. Your ladyship this was illegal,” Mr Imanyara submitted.
Exploited clients
Yesterday the High Court revisited the saga commercial banks faced between 1997 and 2004 relating to interest rates and penalties charged.
Mr Muite, who was among MPs opposed to the charging of interest rates without prior notice, argued that commercial banks exploited clients and acted arbitrary when they increased the rates.
He said commercial banks “robbed” Kenyans when they started charging compound interest and imposing penalties on defaulters without the approval of the minister for Finance.
Between 1997 and 2004, most banks increased their interest rates after the weakening of the shilling against the dollar.
Mr Imanyara took issue with President Kibaki who, upon assuming the presidency, attempted to exempt commercial banks from refunding the monies they had illegally collected from hundreds of defaulters.
The President’s attempt to exempt the banks even after Parliament rejected the Banking Act Amendment Bill 2004 which gave banks a leeway to impose interest rates unchecked. The Bill was brought to the august House by the minister for Finance.
“Many will recall that President Kibaki declined to sign the Banking Act Amendment Bill 2004 and instead recommended that all the interest rates charged by banks prior to the Bill be deemed to have been imposed with prior consent of the minister for Finance before 2004. But Parliament rejected the plea,” he said.
Continued Mr Imanyara: “As the law stands now, commercial banks are barred from increasing interest rates arbitrarily without the consent of the minister for Finance. In view of this position all the inflated interest rates should be removed from the loan my client was given.”
Mr Imanyara attributed the decision by commercial banks to review interest rates and penalties to pressure by the World Bank and International Monetary Fund.
“Kenya witnessed a rise in interest rates owing to pressure the IMF and WB exerted on the government to relax controls on the regulations and management of commercial banks,” he submitted.
Apart from the present case, in December 2003 about 200 workers on Mr Muite’s farm petitioned the government to push the MP to pay their dues totalling Sh2.3 million.
This is after Mr Muite failed to honour a commitment he had made in court to pay the money after a labour case against him was withdrawn.