SBM Bank Kenya Sues Hassan Joho Over Sh54.5 million Islamic Banking Loan Default

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SBM Bank Kenya Ltd has taken legal action against Mining Cabinet Secretary Hassan Ali Joho in an effort to recover Sh54.5 million in loan arrears linked to a Sh40 million Islamic banking loan issued by Chase Bank in 2014.

The loan was intended to finance the purchase of an apartment at Tamarind Village in Nyali, Mombasa.

Court documents filed on November 6 at the Mombasa High Court reveal that Joho repaid only Sh20.25 million of the loan between 2014 and 2021, despite repeated reminders from the bank.

Further, the bank alleges that Joho failed to provide the original title deed for the property and did not sign the charge document, both critical requirements for securing the loan. These omissions have prevented the bank from exercising its statutory power of sale to recover the outstanding amount.

SBM Bank Kenya, which acquired a 75 percent stake in Chase Bank nearly six years ago, stated that the loan matured on January 3, 2024, and continues to attract a default interest rate of 20 percent. The bank has now turned to the courts as a last resort for loan recovery.

Notably, the loan was issued under Islamic banking principles, a sector that has seen significant growth since Gulf African Bank became Kenya’s first fully-fledged Islamic bank in 2007. The sector now includes two Islamic banks and several conventional banks offering Shari’ah-compliant products through specialized “Islamic windows.”

Read: SBM Bank Kenya Announces New Chief Executive

Islamic banking principles prohibit the charging or paying of interest (riba), allowing only interest-free loans known as qard-el-hassan or “good loans.”

Instead of interest, Islamic banks focus on profit and loss sharing, using tools like mudarabah, a partnership where one party provides capital and the other manages investments, with profits shared according to a pre-agreed ratio.

Additionally, Islamic banks avoid activities involving oppression (Dhulm), uncertainty (Gharar), speculation (Qimar), or the production of goods and services considered Haram (forbidden under Islamic law).

Islamic banking, guided by ethical values, emphasizes corporate social responsibility and sustainable development, aligning financial practices with broader societal well-being.