What happens when a relative refuses to repay a loan?

This story has significance for readers across Kenya and beyond.

You lend Sh500,000 to a relative who needs the money to get through a difficult financial period. You agree that they will pay you back, but because you are family, you do not put anything in writing. Months later, you ask for your money back. Your relative tells you they cannot or will not repay you. Without a signed agreement, do you have any legal recourse?

According to Fridah Muriithi, an associate in the commercial department at MMTK Law, the absence of a written agreement does not automatically prevent a lender from recovering money. Kenyan law recognises both written and oral contracts, meaning a loan does not always have to be in writing to be enforceable unless the law specifically requires it.

The bigger challenge is proving that the money was actually a loan and not a gift.

“The burden of proving the existence of the loan rests on the lender,” Muriithi says.

A lender therefore needs to show, on a balance of probabilities, that there was an agreement, that the money was advanced as a loan, that the borrower was expected to repay it and that they failed to do so.

The court can look at what the parties said and how they behaved when deciding whether there was a binding agreement. For people who lend money informally, what happens before and after the transfer can become important if the borrower later disputes the debt.

Muriithi says courts can consider M-Pesa statements, bank transfer records, WhatsApp messages, emails, SMS correspondence, acknowledgements of debt, evidence of part payment, cheques and witness testimony.

Electronic evidence can also be admitted under the Evidence Act, provided the relevant legal requirements are met. The court will ultimately consider all the available evidence to determine whether the money was intended as a loan or a gift.

A recent High Court case illustrates how a loan can be proved even without a written agreement.

In Okongo v Opollo [2025] KEHC 476 (KLR), Esther Akoth Opollo sued Fredrick Omondi Okongo for Sh497,000, which she said she had lent him between 2019 and 2021 to finance his business.

Some of the money was sent directly to Okongo via M-Pesa, while other payments were sent to the bank account of Med Express Enterprises, a business owned by Okongo and his two brothers.

Okongo admitted receiving the money but argued that it was intended for upkeep and support of their family business rather than as a loan. He also claimed that the two parties were married under customary law.

Opollo told the court that their loan agreement was oral and produced M-Pesa transfer confirmations as evidence.

The High Court found that the parties had entered into an oral agreement and that the elements of a contract had been established. Among other things, it considered the parties' conduct, the sequence of events and admissions made during the proceedings. The court upheld the judgment in Opollo's favour and dismissed Okongo's appeal, with costs awarded to her.

Another common problem is lending money without agreeing when it should be repaid.

“Where no repayment date was agreed, the loan is generally regarded as repayable on demand,” Muriithi says.

The lender should make a clear demand for payment, after which the borrower is expected to pay within a reasonable period.

If the borrower still fails to pay, the lender may institute legal proceedings.

Being related does not give the borrower a different legal position.

“Kenyan law does not distinguish between loans made to relatives, friends or unrelated persons,” Muriithi says.

If a borrower refuses to repay, Muriithi recommends issuing a formal demand before immediately filing a case.

The demand letter should state how much is owed, why the money is owed and give the borrower a reasonable period to pay.

This allows the borrower to settle the matter without litigation. It also shows that the lender tried to resolve the dispute before going to court.

If negotiations fail, the lender can file a civil claim to recover the debt.

Mediation, either privately or through court-annexed mediation, is another option. It can provide a quicker and less expensive way of resolving the dispute, Muriithi says.

If the matter goes to court and the lender succeeds, the court may also award interest and legal costs where appropriate.

The amount being claimed largely determines where the case can be filed.

“Claims of up to Sh1 million may be filed before the Small Claims Court, which provides a simplified process for resolving such disputes,” Muriithi says.

Claims above Sh1 million may be filed before the Magistrates' Courts, while claims exceeding Sh20 million fall within the High Court's jurisdiction.

The appropriate location for filing can also depend on factors such as where the defendant lives or where the cause of action arose.

Winning a case does not necessarily mean the money will immediately be in your account.

If a borrower fails to comply with a court judgment, the lender can apply to the court to enforce it.

“Depending on the circumstances, enforcement can include attachment and sale of the borrower's movable or immovable property, or garnishee proceedings against money held by a third party, such as funds in a bank account,” Muriithi says.

There is also a time limit for pursuing a loan claim.

“Under the Limitation of Actions Act, a claim based on a loan agreement must generally be filed within six years from the date the cause of action arose,” Muriithi says.

Once that period expires, the claim will ordinarily be statute-barred, meaning the lender may no longer be able to pursue it through the courts.

Before filing a case, it is also worth considering whether litigation makes financial sense.

There are costs involved, including court filing fees, advocates' fees where legal representation is used, the cost of serving court documents and the time spent pursuing the case.

Muriithi says litigation may not be worthwhile where the amount in dispute is relatively small, the borrower has no identifiable assets against which a judgment can be enforced, or the available evidence is weak.

In such situations, negotiation or mediation may be a more practical and cost-effective option.

According to Muriithi, the easiest way to protect yourself is to document the loan before sending the money.

“A simple written agreement can set out the amount being borrowed, the purpose of the loan, when and how it will be repaid, and the signatures of both parties. You should also keep proof of payment such as M-Pesa or bank records, and preserve WhatsApp messages, emails or other correspondence that confirms the nature of the transaction. Where possible, get a written acknowledgement of the debt.”

Reporting originally appeared via Business Daily. Read the full source for additional context.