The Post-Sehmi SACCO Collateral Standard: What Credit Managers Must Know

Before April 2025, most SACCO credit teams accepted land collateral by running an official title search, confirming the title was in the member's name, commissioning an independent valuation, and registering a charge. This was considered adequate due diligence.

After Sehmi v Tarabana [2025] KESC 21, that standard is no longer adequate. The Supreme Court confirmed that a registered title traced to an illegal original allocation is void, and that official searches "do not delve into the root of title."

For SACCO credit managers, this creates a direct risk question: if a member's land title is later found to have an irregular root, the SACCO's charge on that title may be unenforceable. The security the SACCO believed it held evaporates.

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What the Sehmi Standard Requires

The Sehmi ruling effectively means that accepting land collateral requires checking the root of title, not just the current registration.

Root-of-title check means: tracing the chain of ownership back to the original allocation or first registration and confirming that the origin was legitimate and properly documented.

This check is not possible from an official search or Ardhisasa. It requires a physical review of the Land Registry file for the parcel.

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The Frank Logistics Reinforcement

The Court of Appeal decided Frank Logistics v Golden Lion Real Estate [2025] KECA 1471 in the same period. It nullified a bank's registered charge because the underlying title had an irregular root.

Note: this was a bank, not a SACCO. The legal principle applies identically to SACCO charges.

If a SACCO registers a charge on a title that later proves to have an irregular root, the charge may be nullified in enforcement proceedings, leaving the SACCO with no effective security on the loan.

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What the Post-Sehmi SACCO Collateral Pack Should Include

1. Official search (as before): Current registration, encumbrances, charge history.

2. Physical registry file review (new requirement): A verifier attends the registry and reviews the physical file. Does the file contain documentation supporting each stage of the ownership chain back to the original allocation? Is there an allocation letter or equivalent original document? Are there any unexplained gaps?

3. Court process search (reinforced practice): Any litigation naming the parcel or the registered owner. Includes any challenge to the title that may not yet have resulted in a registered court order.

4. Gazette search: Any compulsory acquisition or other government action affecting the parcel.

5. Named verifier attestation: Someone accountable for the findings, whose name appears on the document.

6. Section 106B certificate: Making the electronic components of the verification record court-admissible.

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The Practical Implementation

For most SACCOs, implementing this standard does not require internal capacity building. It requires ordering a Collateral Verification Pack (CVP) for each new land-secured loan before disbursement.

The Litmus CVP covers all six components above. It is delivered within 72 hours. It costs KSh 3,000 per parcel at institutional pricing.

For a SACCO disbursing 100 land-secured loans per year at an average of KSh 1.5 million each, that is KSh 150 million in annual land-secured disbursements. The CVP cost for 100 loans is KSh 300,000, or 0.2% of the annual disbursement volume.

Against the risk of a non-recoverable loan due to compromised collateral, 0.2% is not a significant cost.

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Updating Your Credit Policy

The post-Sehmi standard should be reflected in your SACCO's credit policy. Specifically:

The credit policy should require a root-of-title check (physical file review) for all new land-secured loans above a stated threshold.

The credit appraisal checklist should include a line confirming that a CVP or equivalent has been obtained.

The credit committee approval should require confirmation that the CVP has been obtained and reviewed.

This embeds the Sehmi standard into the origination process rather than leaving it as a discretionary step.

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This article is for general information only. It does not constitute legal advice. For SACCO credit policy review and regulatory compliance, consult a Kenya advocate with SACCO sector experience.