Have you ever wondered how lenders manage loan repayments when a borrower dies?

Whether it’s the Higher Education Loans Board (HELB), a mortgage, or a secured or unsecured loan, the financial implications can be complex.

Bizna Kenya spoke to HELB and an experienced loan officer to understand what happens in such cases.

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HELB loans and death

HELB told Bizna Kenya that it introduced the Student Loans Self Protection Scheme (SLSPS) in 2019 to insure student loans against the risk of death.

If a loan beneficiary passes away before completing repayment, their next of kin must submit the following documents to HELB offices at Anniversary Towers, Nairobi, or at select Huduma Centre desks across the country:

• A duly filled HELB claim form, available on HELB’s website.
• A copy of the death certificate of the loan beneficiary.
• A copy of the national ID of the next of kin.

“Once these documents are verified, HELB clears the outstanding loan liability, absolving the family and guarantors from any future obligations,” HELB said.

HELB also explained that loans can be waived in other circumstances as per the HELB Act.

However, full loan write-offs require the approval of the Board of Directors, following recommendations from management and in compliance with the Public Finance Management Act 2012.

Mortgage repayments upon death

A credit officer explained that most mortgages are covered by life insurance. Borrowers pay an annual insurance premium, which ensures that if they pass away, the insurance company clears the remaining balance.

“Your dependents and next of kin will not be bothered in this case. They will enjoy using the house,” the officer noted.

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What happens to secured loans after the borrower dies?

Secured loans are backed by collateral, such as a title deed, logbook, or NSE shares. If the borrower dies, the bank can sell the collateral to recover the loan.

“In some cases, if the loan amount is manageable, the family can choose to repay it to keep the property. If not, the lender will sell the asset. However, banks may take years to dispose of land or property, and when they do, it might be at a throwaway price, disadvantaging the family,” the official said.

Unsecured loans and death

For unsecured loans, insurance covers the remaining balance upon the borrower’s death.

“Lenders issue these loans, knowing that the borrower relies on employment to repay. The security is your payslip. That’s why they’re insured. The insurer pays the bank,” the officer explained.

However, if a borrower loses their job, the bank still demands repayment, as job loss is not covered under most unsecured loan agreements. There, however, exist insurance covers against job loss, especially those that come as a result of declaration of redundancies.

What do Saccos do when a member with loan dies?

In Kenya, there exist hundreds of Saccos and they handle death differently. Most Saccos, for instance, the Kenya National Police Sacco pays off the remaining loan amount upon death of the borrower. They then double up the deposits and surrender to family or next of kin. The same happens at Harambee Sacco and several others.

Several other Saccos also have the same model, but such attractive send-off packages are also dependent upon the financial health of the Sacco.

Saccos that are stable are more likely to do things like doubling deposits and fully repaying loans upon the death of a borrower, while struggling ones won’t keep up comfortably.

Mobile loans

For mobile loans from providers like Tala, M-Shwari, Zash, and Zenka, the amounts are usually not huge; mostly between KSh 500 and KSh 50,000.

These loans do not have security deposited nor are they guaranteed, and when a borrower dies, the amount is typically written off and counts towards the lender’s loss.