Introduction of the in Duplum Rule in Rwanda
The end 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.
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.
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