In Kenya, check-off loans, also known as salary-deduction loans, are a common form of credit offered by employers to their employees. These loans are deducted directly from the employee’s salary, making them a convenient way for employees to access credit. The employer plays a key role in facilitating check-off loans for their employees and is subject to certain legal requirements and obligations under Kenyan law. In this report, we will explore the role of an employer in facilitating check-off loans in Kenya in more detail.
Legal Framework for Check-off Loans in Kenya
The legal framework for check-off loans in Kenya is set out in the Employment Act of 2007 and the Credit Reference Bureaus Act of 2007. These laws establish the legal framework for check-off loans in the country and set out the rights and responsibilities of employers and employees in relation to check-off loans. Under these laws, employers are allowed to facilitate check-off loans for their employees but are subject to certain requirements and obligations.
Employment Act of 2007: The Employment Act of 2007 sets out the rights and obligations of employers and employees in relation to check-off loans. According to the Act, employers are required to provide employees with clear and accurate information about the terms of the loan, including the interest rate, repayment period, and any fees or charges. Employers are also required to ensure that the terms of the loan are fair and reasonable and that the employee is able to afford the loan based on their salary.
The Regulations on Employment and Remuneration, 2010 further specify that the maximum amount that can be deducted from an employee’s salary for a check-off loan is 10% of the employee’s gross salary. This means that, for example, if an employee has a gross salary of KES 50,000 per month, the maximum amount that can be deducted for a check-off loan is KES 5,000.
Credit Reference Bureaus Act of 2007: The Credit Reference Bureaus Act of 2007 establishes the regulatory framework for credit reference bureaus in Kenya. Under the Act, credit reference bureaus are required to maintain accurate and up-to-date information about the creditworthiness of individuals and businesses. Employers are required to report any check-off loans that they facilitate to the credit reference bureaus so that the information can be included in the borrower’s credit report.
The Role of the Employer in Facilitating Check-off Loans in Kenya
Under Kenyan law, the role of an employer in facilitating check-off loans and their potential obligations can vary depending on the specific terms and conditions of the loan. However, there are some general principles that apply to the employer’s role in facilitating check-off loans:
Facilitating the loan process: An employer may facilitate the loan process by offering check-off loans as an employee benefit, providing information and assistance to employees who are interested in taking out a check-off loan, and collecting loan repayments from the employee’s salary. The employer may also be responsible for communicating the terms and conditions of the loan to the employee and ensuring that the employee understands their obligations under the loan agreement.
Intermediary: As mentioned above, the employer serves as the intermediary between the employee and the lender. The employer is responsible for collecting the loan payments from the employee’s salary and forwarding them to the lender.
Credit Check: In some cases, the employer may be responsible for conducting a credit check on the employee before approving the loan. This can help the employer to determine whether the employee is a good candidate for a check-off loan and can also help to protect the employer from potential default risk.
Counseling: The employer may also play a role in providing counseling or financial education to employees who are considering taking out a check-off loan. This can help employees to understand the terms of the loan and make informed decisions about whether a check-off loan is the right financial option for them.
Compliance: The employer is also responsible for ensuring compliance with the Employment Act of 2007 and the Credit Reference Bureaus Act of 2007, as well as any other applicable laws or regulations related to check-off loans. This includes providing employees with clear and accurate information about the terms of the loan, ensuring that the terms of the loan are fair and reasonable, and reporting the loan to the credit reference bureaus.
Obligations
- Protecting employee rights: An employer has a duty to protect the rights of its employees, including their financial rights. This means that the employer should ensure that the terms and conditions of the check-off loan are fair and reasonable and that the loan is not being used to exploit the employee’s financial situation.
- Complying with employment laws: An employer has a legal obligation to comply with employment laws, including laws relating to salary deductions. This means that the employer must ensure that the check-off loan repayments are deducted from the employee’s salary in accordance with the applicable laws and regulations.
- Ensuring confidentiality: An employer has a duty to protect the confidentiality of its employee’s personal and financial information. This means that the employer should not disclose the details of the employee’s check-off loan or the loan repayments to third parties without the employee’s consent unless required to do so by law.
Overall, the role of an employer in facilitating check-off loans and their potential obligations can vary depending on the specific terms and conditions of the loan. It is important for employers to carefully review the terms and conditions of check-off loans and ensure that they are complying with all relevant laws and regulations, in order to protect the rights of their employees and avoid potential legal liabilities.
Risks for Employers in Facilitating Check-off Loans in Kenya
There are also risks for employers in facilitating check-off loans for their employees in Kenya:
Default Risk: If an employee default on their check-off loan, the employer may be held liable for the unpaid balance. This can be especially risky for employers who have a large number of employees taking out check-off loans, as the potential default