The Business Laws Amendment Act, 2024

Recent changes to the regulatory environment have significantly affected the direction and trends of the loan market in Kenya. In December 2024, Kenya enacted the Business Laws (Amendment) Act, 2024 which expanded the Central Bank of Kenya’s (CBK) mandate in regulating credit providers to include the regulation of non-deposit taking credit providers, which arguably extends to foreign lenders offering debt to Kenyan entities. Such lenders are now required to register a local presence in Kenya and obtain a licence from the CBK. This has, though seemingly inadvertently, resulted in reduced access to foreign debt investment and international credit to Kenyan entities, as obtaining such a licence is expensive and time consuming. Moreover, it would be impractical for non-Kenyan lenders to establish a local presence in Kenya and obtain a licence only for the purpose of lending to a few Kenyan entities.

The said Act has also increased the minimum core capital requirements for commercial banks to KES10 billion by December 2029. The increase of core capital for banks will see increased M&A activity and consolidation between banks in Kenya. This increase in core capital could see the exit of banks that do not have additional appetite to expand in the Kenyan market, by offloading their positions to banks with stronger positions in the market.

Recent Court Decisions

In the case of Bruton Gold Trading LLC v Anne Atieno Amadi & Others (HCCC No E211 of 2023), the High Court of Kenya issued a welcome ruling to the effect that non-registered foreign entities can pursue legal remedies in Kenyan courts. A previous High Court decision (in Stichting Rabo Bank Foundation v Ava Chem Limited & Another [2024] KEHC 9931 (KLR)) had held that, despite being registered in a foreign jurisdiction, a foreign entity could not sue in Kenya without establishing a local presence. This determination will boost foreign lender confidence as the determination in Stitching Rabo implied that all foreign entities (despite not having local operations) ought to register in Kenya in order to have access to Kenyan courts.

Lifting of Moratorium on Licensing of New Commercial Banks

On 16 April 2025, the CBK announced that it would lift the moratorium on licensing of new commercial banks from 1 July 2025. The moratorium had been in place from 17 November 2015 and was placed as a backdrop of governance, risk management and operational challenges in the banking sector. It was intended to provide space for the strengthening of the Kenyan banking sector. The moratorium has since been lifted due to the new capital requirements for banks, increased M&A and strengthening of banks’ positions, and the entry of strategic foreign investors.

New Risk-Based Credit Pricing Model

The CBK has, effective 1 September 2025, revised the pricing model for banks to a new Risk-Based Credit Pricing Model (RBCPM) anchored on the overnight interbank average rate, now renamed the Kenya Shilling Overnight Interbank Average (KESONIA). The objective of the new rate is to:

• align it with international best practices;
• strengthen monetary policy transmission;
• enhance transparency in lending; and
• promote responsible lending by aligning credit pricing with the borrowers’ risk profiles.

Under the revised RBCPM, the total lending rate is KESONIA + Premium (K), where the premium includes the costs related to lending, return to shareholders, and the risk profile of the borrower. The total cost of credit is thus KESONIA + K + Fees and Charges (Fees and Charges include origination, processing, negotiation and commitment fees). KESONIA stands for the Kenya Shilling Overnight Interbank Average. It is a transaction-based benchmark rate reflecting the average interest rate at which banks in Kenya lend and borrow unsecured overnight funds in Kenyan Shillings. The revised RBCPM takes effect from 1 September 2025, for all new variable rate loans. As for existing variable rate loans, the revised RBCPM will take effect from 28 February 2026, at the end of a six-month transition period for finalisation of the necessary arrangements.

Economic Cycles

According to the CBK, economic growth decelerated to 4.7% in 2024 from a growth of 5.7% in 2023. The growth, albeit slower, was mainly supported by activities in agriculture, financial and insurance services, transport and storage, real estate, information and communication, wholesale and retail trade, and social sectors. However, growth was largely constrained by the contraction of construction and mining and quarrying sectors, and a deceleration in growth across key sectors except manufacturing sector.

Kenya’s loan market faces macroeconomic challenges, including inflation averaging 5–6% in 2025 and Kenyan shilling volatility, driven by global commodity price shocks. The Central Bank of Kenya (CBK) has adopted a tighter monetary policy, with the Central Bank Rate (CBR) at 9.50% as of August 2025, leading to elevated commercial lending rates (13–18% for SMEs). This has increased borrowing costs, particularly for SMEs, prompting shorter-term loan structures and greater reliance on local financing like Savings and Credit Co-operative Organisations (SACCOs).

Global conflicts – particularly the Russia–Ukraine war and instability in the Middle East – have indirectly affected Kenya’s loan market by increasing fuel and food import costs, disrupting supply chains, and adding pressure on the Kenyan shilling. The currency has been volatile, with depreciation during 2022–23 followed by some recovery in 2024–25, while inflation has remained above the CBK’s 5% midpoint target, averaging around 5–6% in 2025. These pressures have raised borrowing costs and discouraged longer-term lending.

Financial institutions have responded by tightening credit terms to cushion against volatility. Banks increasingly include foreign exchange fluctuation clauses in loan contracts, and market reports indicate a trend towards shorter repayment periods in SME facilities. While these measures safeguard bank balance sheets, they also increase repayment pressure on smaller businesses, especially in agriculture and retail.

At the same time, local financing networks such as SACCOs and community-based savings groups (chamas) continue to absorb unmet credit demand. Microfinance activity has expanded, particularly in rural areas, helping to support liquidity and mitigate exclusion, although these sources cannot fully match the scale of formal bank financing. The loan market is therefore characterised by greater caution, shorter horizons and growing reliance on local capital pools.

Kenya’s high-yield market has become an important complement to bank financing, as both government and corporate issuers turn to bonds and structured instruments to raise capital in an elevated interest rate environment. With the Central Bank Rate at 9.50% as of August 2025, treasury and infrastructure bonds have offered yields in the low-to-mid teens, drawing strong participation from pension funds, insurers and foreign institutional investors seeking higher returns than in developed markets.

The government continues to rely on this market to finance infrastructure and energy programmes, using infrastructure bonds to mobilise domestic savings for large-scale public investment. These issuances help plug fiscal gaps while providing investors with secure, high-yield opportunities.

Corporate issuers are also re-engaging with the bond market. Market participants report renewed investor appetite for credible corporate paper, particularly from established companies in telecommunications, banking and energy. In parallel, Kenyan banks have employed hybrid structures – combining syndicated loans with bond offerings – to diversify their funding bases. These transactions, often structured over five to ten years, allow corporations to balance debt portfolios while offering investors flexible repayment mechanisms.

Alternative credit providers have reshaped Kenya’s financial landscape by offering fast, technology-driven lending solutions that expand access to underserved populations. Fintech platforms handle very high volumes of small-ticket loan applications each month, running into hundreds of thousands, leveraging mobile technology and alternative credit-scoring models based on mobile usage, airtime top-ups and utility bill payments. These providers offer short-term loans, typically ranging from KES500 to around KES70,000, with repayment periods as short as 30 days. While interest rates are generally higher than traditional bank loans, competition and regulatory intervention are driving greater transparency and more sustainable pricing.

Traditional banks have been compelled to respond to this disruption. Products have been developed that integrate mobile technology with mainstream banking, offering instant loans linked to mobile money wallets. These services provide more flexible repayment terms and lower interest rates for low-risk borrowers, intensifying competition in the sector.

Regulation has also evolved in response to the rapid expansion of alternative credit. The CBK (Digital Credit Providers) Regulations, 2022 require all digital lenders to be licensed by the CBK, ensuring transparency in loan pricing, consumer data protection and fair collection practices. By mid-2025, more than 50 digital credit providers had obtained licences. CBK has continued to emphasise enhanced consumer protection, including clearer disclosure of effective interest rates and restrictions on aggressive debt-collection practices. While compliance has increased operating costs, the reforms have strengthened consumer confidence and curbed predatory behaviour in the sector.

Kenya’s banking and finance techniques are evolving to meet the diverse needs of both investors and borrowers in a market shaped by rising interest rates and heightened credit risks. Traditional bank loans remain the backbone of corporate finance, but borrowers are increasingly adopting hybrid structures that combine loans, bonds and equity to optimise funding. Holding company structures are gaining traction, allowing firms to pool assets across subsidiaries and use consolidated balance sheets to secure financing on more favourable terms.

Sustainability-linked lending is steadily gaining momentum in Kenya, reflecting both global investor priorities and domestic policy shifts towards green finance. Commercial banks have begun embedding environmental, social and governance (ESG) criteria into loan products.

The CBK has supported this development by issuing Guidelines on Climate-Related Risk Management (2021), which require banks to integrate climate risk into governance, strategy, risk management and disclosure practices. Building on this, in 2024–25 Kenya introduced a Green Finance Taxonomy and began phasing in climate-related disclosure frameworks for banks, aligning local practice with the country’s commitments under the Paris Agreement and its pledge to achieve net-zero emissions by 2050.

Kenya has also benefited from concessional credit lines and green finance initiatives supported by development finance institutions such as the African Development Bank and the International Finance Corporation. These facilities channel funding into renewable energy (solar, wind, geothermal), climate-smart agriculture and sustainable manufacturing, reinforcing the growth of sustainability-linked lending in the domestic market.

Other initiatives include the following.

• CMA Code of Corporate Governance Requirements for Issuers of Securities to the Public, 2015 prescribes that listed companies integrate ESG considerations in governance and report on sustainability performance.
• Kenya Bankers Association’s Sustainable Finance Guiding Principles and the Landscape of Sustainable Finance in Kenya’s Banking Industry Report aim to enhance sustainability.
• The NSE Listing Rules, the ESG Disclosures Guidance Manual, 2021 and the Policy Guidance Note on Green Bonds, 2019 require ESG integration by listed companies.
• The ICPAK’s Roadmap for Adoption of IFRS Sustainability Disclosure Standards in Kenya requires adoption of IFRS 1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS 2 (Climate-related Disclosures), making ESG reporting mandatory for public companies, including financial institutions.

The regulatory framework for providing financing in Kenya is anchored in the Banking Act (Cap. 488), the Microfinance Act (2006), and oversight by the CBK. Banks, microfinance institutions and other non-bank financial entities are required to obtain appropriate licences before offering financing and observe anti-money laundering requirements to operate legally. Pursuant to the amendments introduced by the Business Laws Amendment Act, 2024, foreign companies are now required to register locally and obtain licences locally to lend to companies in Kenya.

Banks

The following requirements apply in relation to banks.

• To operate, banks must obtain a licence from the CBK under Section 4 of the Banking Act.
• Key requirements include:
1. minimum core capital of KES1 billion (the Business Laws Amendment Act, 2024 provides progressive increase of the minimum core capital to KES10 Billion by December 2029);
2. demonstration of sound corporate governance and fit-and-proper criteria for directors and senior management;
3. robust risk management systems to address credit, liquidity and market risks; and
4. annual external audits and continuous CBK supervision, including prudential returns.

Microfinance Institutions and SACCOs

The following requirements and procedures apply.

• Deposit-taking microfinance businesses and non-deposit taking microfinance businesses must be licensed under the Microfinance Act, 2006. Licensing is done by the CBK.
• Deposit-taking microfinance institutions (DTMs) must maintain a minimum capital of KES60 million for nationwide operations or KES20 million for community-level DTMs.
• SACCOs offering front-office savings and credit (FOSAs) are regulated by the Sacco Societies Regulatory Authority (SASRA), which requires minimum institutional capital of KES10 million, fit-and-proper management and annual reporting.

These institutions play a critical role in financial inclusion, particularly in rural areas, where the primary credit access comes from SACCOs and microfinance lenders.

Foreign Lenders

Pursuant to the amendments introduced by the Business Laws Amendment Act, 2024, foreign lenders are required to register in Kenya and obtain licences from the CBK in order to lend to Kenyan entities.

Licensing Requirements

The Business Laws (Amendment) Act, 2024, which expanded the CBK’s mandate in regulating credit providers to include the regulation of non-deposit taking credit providers, arguably extends to foreign lenders offering debt to Kenyan entities. Foreign lenders are now required to register a local presence in Kenya and obtain a licence from CBK to lend to Kenyan entities.

Registration Under the Companies Act

Foreign lenders that are “carrying on business” in Kenya must register as a foreign company under the Companies Act, 2015 to gain legal standing in Kenya.

Whereas some decisions by Kenyan courts required foreign entities to establish local presence in Kenya (through registration) in order to access Kenyan courts, the most recent decision was to the effect that foreign entities need not register locally to access Kenyan courts. The courts in the previous decisions interpreted “carrying on business” to include lending. That notwithstanding, the process of registering a foreign entity in Kenya would be as follows:

• filing incorporation documents with the Companies Registry;
• paying registration fees, depending on the share capital; and
• obtaining a Certificate of Compliance within 30 days of commencing business.

Subject to meeting licensing and registration requirements, foreign lenders are permitted to take security interests or guarantees over Kenyan assets, but enforceability is subject to compliance with Kenyan registration, stamping and perfection requirements. The process is largely governed by the Movable Property Security Rights Act, 2017 (MPSRA), the Land Act, 2012, and the Companies Act, 2015. While there is no outright prohibition, failure to meet statutory formalities can render security unenforceable against third parties.

Types of Security Available to Foreign Lenders

The following types of security are available to foreign lenders.

• Land and real estate – Charges or mortgages must be registered at the Lands Registry under the Land Act. Non-citizens (including foreign-owned companies) cannot own freehold land but can take leasehold interests (maximum 99 years).
• Movable assets – Security over movables (equipment, receivables, inventory) is registered on the Collateral Registry under the MPSRA.
• Company assets – Charges created by Kenyan companies must be registered with the Companies Registry within 30 days under the Companies Act.
• Shares – Security over shares in a Kenyan company requires notation in the company’s register of members and, for listed companies, notification to the Capital Markets Authority (CMA).

Stamping and Perfection

The following apply to foreign lenders.

• Unless exempt, security documents must be stamped under the Stamp Duty Act, typically at 0.1% of the secured amount.
• Stamping must occur within 30 days of execution if signed in Kenya, or 30 days of receipt if executed abroad. Late stamping attracts penalties.
• Perfection of security ensures priority over other creditors and enforceability in insolvency proceedings.

Practical Considerations for Foreign Lenders

The following practical considerations apply.

• Foreign lenders may appoint a local security agent or trustee to hold collateral and facilitate registration.
• In cross-border financings, security is often governed by Kenyan law.

Kenya operates a liberalised foreign exchange regime, meaning there are no exchange controls restricting the holding, transfer or conversion of foreign currency. However, the system is closely monitored by the CBK under the Central Bank of Kenya Act (Cap. 491) and the Foreign Exchange Regulations, 2015, to prevent money laundering, capital flight and economic instability. While businesses and individuals can freely transact in foreign currency, large transactions are subject to reporting, documentation and compliance requirements.

General Framework

The following apply in relation to foreign currency exchange.

• There are no caps on the amount of foreign currency that can be remitted abroad, provided proper documentation is provided.
• All foreign exchange transactions must pass through CBK-licensed commercial banks or authorised dealers.
• The Kenyan shilling remains the only legal tender in domestic transactions, though loans, contracts and investments may be denominated in foreign currencies (typically USD or EUR).

Reporting and Documentation Requirements

The following requirements should be noted.

• Banks require supporting documentation for material foreign exchange transactions exceeding USD10,000.
• Banks must report such transactions to the Financial Reporting Centre (FRC) under the Proceeds of Crime and Anti-Money Laundering Act (POCAMLA, 2009).
• Payments abroad (eg, loan repayments, dividends, royalties) require documentation such as loan agreements, board resolutions or invoices, which are verified before remittance.

Kenyan law does not impose blanket statutory restrictions on how borrowers use loan proceeds. Instead, restrictions are largely contractual, embedded in the loan agreements negotiated between lenders and borrowers.

Agent and trust concepts are recognised and often used, particularly where there are multiple lenders or in syndicated facilities.

Kenyan law permits the transfer of loans and security instruments.

Debt buybacks are permitted in Kenya. Pursuant to the Consumer Protection Act, a borrower is entitled to pay the full outstanding balance under a credit agreement at any time without any prepayment charge or penalty. This provision of the law does not apply to a credit agreement where the national or the county government is the principal borrower or guarantor or where the borrower is a public entity or where the lender is either a bilateral or multilateral foreign financial institution.

“Certain funds” provisions are designed to guarantee that the necessary financing is fully committed and readily available to complete the deal. This reduces uncertainty for target shareholders and regulatory bodies. These requirements are outlined in the Capital Markets (Takeovers and Mergers) Regulations under the oversight of the Capital Markets Authority, ensuring that acquirers demonstrate proof of funding through irrevocable commitments from lenders or cash reserves. Long-form documentation is commonly used for these transactions and these are publicly filed with various obligations to ensure integrity of the process.

Digitisation of Registries has resulted in online processing of registration applications and, in some instances, online execution of documents.

Kenya also continues to strengthen its anti-money laundering framework under the Proceeds of Crime and Anti-Money Laundering Act (POCAMLA, 2009) and CBK guidance, reflecting FATF recommendations. This has led to enhanced KYC, reporting and due diligence provisions in loan documentation, particularly for cross-border transactions and syndicated facilities.

Following the CBK Climate Risk Guidelines (2021) and the launch of the Kenya Green Finance Taxonomy in 2024, lenders increasingly embed ESG covenants and reporting obligations into financing documents. Development finance institutions also provide green credit lines to Kenyan banks for on-lending to renewable energy, climate-smart agriculture, and sustainable infrastructure projects. These initiatives are pushing the market towards sustainability-linked documentation standards in line with international practice.

Kenya does not currently have usury laws or statutory caps on lending rates. The interest rate caps introduced in 2016 under the Banking (Amendment) Act were repealed in November 2019, restoring market-based pricing. Today, interest rates are determined by commercial negotiations between lenders and borrowers, subject to the CBK’s oversight and pricing model.

The Banking Act (Cap. 488) requires banks to seek approval from the Cabinet Secretary in charge of finance before increasing bank charges or fees, but this does not extend to statutory limits on loan interest rates.

The Banking Act also provides that a lender cannot recover more interest than the principal amount.

Kenya’s Consumer Protection Act also prohibits lenders from charging default charges other than:

• reasonable charges in respect of legal costs that the lender incurs in collecting or attempting to collect a required payment by the borrower under the agreement;
• reasonable charges in respect of costs, including legal costs, that the lender incurs in realising a security interest or protecting the subject matter of a security interest after default under the agreement; or
• reasonable charges reflecting the costs that the lender incurs because a cheque or other instrument of payment given by the borrower under the agreement has been dishonoured.

This restriction does not extend to interest charged on overdue payments.

Kenyan law requires lenders to disclose key loan terms, charges and risks to borrowers before execution. This obligation is grounded in the Banking Act (Cap. 488), the Banking (Consumer Protection) Regulations, 2013, and CBK prudential guidelines, which collectively mandate transparency on matters such as interest rates, repayment schedules, default penalties and total cost of credit. These requirements are designed to protect borrowers from hidden costs and ensure informed decision-making.

The Proceeds of Crime and Anti-Money Laundering Act requires reporting institutions to maintain their client’s records, including information about financial transactions.

For public entities, the Public Finance Management Act, 2012 imposes additional disclosure and reporting obligations. All public borrowing must be authorised, disclosed in budget documentation, and reported to Parliament and the Controller of Budget. This framework is intended to promote accountability and prevent mismanagement of public debt.

While Kenya does not impose a universal public filing requirement for private loan contracts, regulators (including the CBK and CMA) may review financing arrangements in specific contexts – such as listed companies, public takeovers or prudential supervision of banks. In practice, legal documentation is carefully reviewed to ensure compliance with disclosure standards, and non-compliance can attract regulatory sanctions.

Under the Income Tax Act (Cap. 470), interest payments made to non-resident lenders are subject to withholding tax. Withholding tax on interest is a final tax for the non-resident recipient. The Kenyan borrower is responsible for deducting and remitting it to the Kenya Revenue Authority (KRA) at the time of payment. Borrowers cannot offset this withholding against their own corporate income tax liability.

There are instances where withholding tax would apply where the payments fall into other categories of payments that are subject to withholding tax, eg, dividends and royalties.

Withholding tax would not apply where interest is paid to a tax-exempt person or to foreign lenders financing projects that are specifically exempt from tax – eg, energy, water, roads, ports, railways or aerodromes projects.

In addition to withholding tax on interest, lenders and borrowers in Kenya should consider the following.

• Stamp duty – Security documents such as charges, mortgages and debentures must be stamped under the Stamp Duty Act (Cap. 480). The rate is typically 0.1% of the amount secured, with no statutory cap. Stamping is necessary for enforceability in court and for registration at the Companies Registry or Lands Registry.
• VAT – Under the VAT Act, 2013, most financial services (including the granting of credit and interest on loans) are VAT-exempt. However, certain ancillary fees (eg, arrangement fees, commitment fees, legal and advisory fees) may attract VAT at the standard rate of 16% unless specifically exempt.
• Other fees (other than interest charged by lenders) would be subject to excise duty.
• Other tax considerations would include thin capitalisation rules and transfer pricing regulations.

Foreign lenders, including non-money centre bank lenders, face a 15% withholding tax on interest paid by Kenyan borrowers, as per the Income Tax Act.

Related-party loans are scrutinised by the Kenya Revenue Authority (KRA) for transfer pricing (ensuring arm’s-length interest rates) and thin capitalisation (debt-to-equity ratio not exceeding 3:1 for non-financial entities). Non-compliance may lead to disallowed interest deductions. Additional concerns include stamp duty on loan agreements and potential exchange control issues.

To mitigate, lenders can do the following:

• structure loans through DTA jurisdictions;
• ensure arm’s-length terms;
• maintain compliant debt ratios; and
• work with local banks or law firms to handle compliance, documentation and enforcement efficiently.

Assets used as collateral take the following forms:

• immovable assets such as land and buildings may be used in the form of a charge or mortgage over the land;
• movable assets such as machinery, vehicles, cash deposits or bank savings may be used in the form of an account charge, debenture, company or personal guarantee, or pledge; and
• intangible assets such as intellectual property rights, receivables or shares may be used in the form of a deed of hypothecation or share pledges.

Formalities and perfection requirements are as follows.

• Immovable property – Generally secured by way of a charge, which must be stamped and registered at both the Lands Registry and Companies Registry.
• Movable security – Generally secured by way of charges, debentures, guarantees or pledges. Charges and debentures over movable property must be stamped and registered at the collateral registry and the Companies Registry.
• Intangible security – Form of security is deed of hypothecation, assignment, guarantees or share pledges.

Failure to stamp securities will render them inadmissible as evidence before a Kenyan court and therefore they may not be fully enforced in Kenya. Notice of the security created over movable property must be registered at the collateral registry, for such security to be effective against third parties. Failure to register a charge at the Companies Registry renders the charge void. Ultimately, failure to perfect securities will result in the lender losing priority during recovery.

Floating charges and security interest over all present and future assets of a company are permissible under Kenyan law.

Entities can give downstream, upstream and cross-stream guarantees. No statutory approvals are required for a company to give a guarantee or provide security unless there are specific restrictions in its constituting documents.

A limited company may purchase its own shares only out of: (i) distributable profits of the company; or (ii) the proceeds of a fresh issue of shares made for the purpose of financing the purchase. Any premium payable on the purchase by a limited company of its own shares is required to be paid out of distributable profits of the company.

If a person is acquiring or proposing to acquire shares in a public company, neither the company nor any other company that is a subsidiary of the company may give financial assistance (directly or indirectly) for the purpose of the acquisition before or at the same time as the acquisition takes place. Similarly, if a person is acquiring or proposing to acquire shares in a private company, a public company that is a subsidiary of that company cannot give financial assistance (directly or indirectly) for the purpose of the acquisition before or at the same time as the acquisition takes place.

Other restrictions in connection with the grant of security or guarantees include:

• the borrower’s constitutional documents (which may create restrictions on the amount or manner through which securities may be issued);
• consents from government offices (eg, land control board consent where the land is agricultural land, regulatory consents where the borrower is in a regulated business); and
• consent from existing lenders.

Charges are released by executing, stamping and registering a discharge of charge. Guarantees, pledges and debentures are released by way of a deed of release.

Generally, priority of competing security is determined by time. Priority is given to the security registered earlier.

Contractual subordination is permissible where lenders agree to have their debt subordinated. This is generally done by way of a subordination agreement and such agreements survive the insolvency of a borrower.

A priming lien is a lien on property senior to, or with the same priority as, existing liens on the same property.

In Kenya, certain security interests automatically arise and prevail against a registered security of the lender. These commonly include statutory liens, charges or possessory rights that do not need to be registered. Examples include:

• tax liens;
• customs duty;
• employee wage claims; and
• landlord’s liens.

Insolvency law also gives rise to preferential debts such as employee wages and certain government charges, which have to be paid in preference to secured creditors.

These statutory or legal liens are capable of “priming” the security interest of a lender in that they become effective automatically and are registration-independent. For example, unpaid employee benefits to the Kenya Revenue Authority or unpaid taxes are capable of payment in priority over secured and unsecured creditors. Landlords can also have a right of distress on unpaid rent, extendable to secured creditors where the security is situated on leased land.

Typically, lenders try to restrict the risk of priming liens by:

• due diligence – revealing prospective statutory claims or arrears before lending;
• agreements with existing lenders;
• covenants and undertakings – requiring the borrower to remain current with taxes, rent and employee obligations;
• reserves or escrow arrangements – retaining funds for the payment of statutory dues and avoiding accrual of priority claims; and
• monitoring and reporting obligations – ensuring continuous compliance through periodic borrower disclosure.

A lender may enforce its collateral on the occurrence of an event of default. Events of default are typically provided for in the finance documents (particularly the loan agreement and the securities). The method of enforcement differs according to the type and character of the security. Where a charge is registered over immovable property, the lender may:

• sue the chargor for any money due and owing under the charge;
• appoint a receiver of the income of the charged land;
• lease the charged land or, if the charge is of a lease, sublease the land;
• enter into possession of the charged land; or
• sell the charged land.

For debentures or floating charges, the lender may appoint a receiver over the company, while, for guarantees, the lender may sue the guarantor for the guaranteed sum.

In order to ensure proper realisation of security, it is crucial to ensure that the security was perfected in the first place and that due process is followed during enforcement.

The choice of foreign law as the governing law of finance documents will be recognised and upheld by the Kenyan courts. Submission to foreign jurisdiction will also be recognised and upheld by the Kenyan courts. A waiver of sovereign immunity in a contract is generally enforceable in Kenya where it is explicitly expressed.

A judgment given by a foreign court or an arbitral award against a borrower will be enforceable in Kenya without a retrial of the merits of the case.

Previously, there were no matters that impacted a foreign lender’s ability to enforce its rights under a loan or security agreement. However, the Business Laws Amendment Act, 2024 widened the scope of the CBK’s regulation of non-deposit credit providers to include foreign lenders, thus requiring registration of foreign lenders with the CBK. Some court decisions have also created jurisprudence to the effect that foreign entities are required to establish a presence in Kenya in order to access Kenyan courts.

The moment insolvency proceedings against a borrower are initiated in Kenya, a moratorium is placed and there is an automatic stay according to the Insolvency Act. This prevents lenders from initiating or continuing enforcement action, such as the realisation of secured assets, without leave of the court. The stay is designed to preserve the assets of the debtor and facilitate fair treatment of all the creditors.

General Framework

The Kenyan Insolvency Act lays down a clear order of distribution during the winding-up of a company. This order aims to satisfy the commercial certainty and the protection of employees and public revenues. Creditor repayment is therefore carried out in strict order of priority with some classes far ahead of others.

Insolvency Costs and Expenses

The first payments are to fund the insolvency itself. These are the payment of the insolvency practitioner’s fee and other costs incurred in managing and protecting the company’s assets. Without the payment of these charges, the insolvency process cannot operate effectively.

Preferential Creditors

After insolvency expenses, the preferential creditors are paid. They include employees for wages and outstanding benefits, within the confines of legislation, and the Kenya Revenue Authority for taxes. The law ensures that the government and employees are taken care of before creditors receive their money.

Secured Creditors

Fixed charge creditors take priority over assets charged to them in a specific manner. Floating charge creditors are paid out of the remaining assets of the company but subsequent to preferential creditors. The priority is because fixed security has better legal rights compared to floating security.

Unsecured Creditors and Shareholders

Unsecured creditors rank below preferential and secured creditors, and usually recover only a partial amount of their claims. Shareholders rank lowest for distribution and only receive a return if all of the creditors are paid in full, which does not often occur in practice.

Insolvency processes and recoveries in Kenya vary in length depending on different factors, including the amount of time required to ascertain creditors, liabilities and assets available for distribution. Additionally, given that the court plays a central role in insolvency proceedings, insolvency may take longer due to backlog and procedural issues.

Statutory Rescue Mechanisms

Statutory rescue mechanisms in Kenya are available under the Companies Act and Insolvency Act. The most commonly used vehicles are schemes of arrangement and company voluntary arrangements, allowing a company to sit with creditors to plan the reconstruction of debt while remaining in business. These mechanisms require the consent of creditors and, on average, approval by the court for them to be effective.

Schemes of Arrangement

A scheme of arrangement is a settlement of a company with its creditors or shareholders and is generally used to restructure financial obligations and avoid insolvency. It must be approved by a majority in number who hold over 75% in value of the creditors or class of creditors who vote. The scheme, when approved by the court, has binding effect on all concerned creditors, including objectors.

Company Voluntary Arrangements

A company voluntary arrangement allows directors to submit a payment or restructuring proposal to creditors with the assistance of an insolvency practitioner. It is less court-oriented and more accommodative than a scheme of arrangement, though court involvement can be required where there are disagreements amongst creditors. It may be employed to provide breathing space for viable firms facing temporary finance issues.

At the initiation of insolvency proceedings, a moratorium automatically prohibits lenders from enforcing security or pursuing guarantors immediately without a court order. The delay is significant, especially where the insolvency practitioner prioritises stabilising the business or discussion with other creditors. For the lenders, the delay reduces the ability for immediate action to preserve asset value.

Secured creditors might find themselves in jeopardy if they failed to register or perfect the security interests. The insolvency practitioner may reserve unregistered or late-registered charges, making the lender an unsecured creditor.

It is also important to note that Kenyan insolvency law gives preference to employees and tax authorities.

While guarantees remain enforceable, insolvency of a security provider or guarantor reduces their value in practice. Recovery is bound to be postponed or insignificant if guarantors themselves are insolvent. This risk therefore highlights the importance of assessing the financial status of guarantors at the outset.

Project finance has become a popular financing tool in Kenya, particularly for energy and infrastructure projects that are heavily capital-intensive. Public and private sponsors have increasingly used project finance structures to fund international capital and transfer risk to operators, contractors and lenders. The model is attractive in the sense that repayment is directly tied to project revenues rather than the sponsor’s balance sheet.

Energy and Power Projects

The energy sector is the largest consumer of project finance in Kenya. Major renewable schemes, particularly in geothermal, wind and solar energy, have been funded by highly complex project finance arrangements with multilateral lenders, development finance institutions and commercial banks. They are facilitated by Kenya’s abundance of natural resources and government subsidies for the expansion of the national grid.

Infrastructure and Transport

Transport infrastructure, including roads, ports and railway lines, also requires huge project finance. Public–private partnership funding is frequently used to fund large schemes such as highways and port terminals. The investments are critical to intra-regional trade and logistics and are therefore a priority to both the government and private sponsors.

Other Emerging Sectors

Apart from transport and energy, project finance is increasingly being utilised in water and sanitation, telecommunications, and low-income housing programmes. The government focus on universal access to clean water and internet penetration has created room for blended financial arrangements. While these sectors are still nascent, they are an indication of how project finance is being used in more sectors.

Legislative Framework

Public–private partnerships (PPPs) in Kenya are governed primarily by the Public Private Partnerships Act, 2021, which replaced and updated the earlier 2013 framework. The Act sets out the procedures for procuring, approving and managing PPP projects, and established the PPP Committee and Directorate to oversee implementation. It provides for several models, including concessions, build–operate–transfer arrangements, and joint ventures between public and private entities.

Approval and Procurement Process

The Act requires the PPP projects to undergo a competitive and transparent procurement process, which is overseen by the PPP Directorate. The projects are required to be aligned with national development priorities, and feasibility studies are a mandatory precursor to approval. This is for the purpose of establishing that PPPs offer value for money and protect public interests.

Legal Restrictions and Risk Allocation

While the law provides for a good framework, there are also constraints aimed at safeguarding public resources. Government guarantees and support measures must be approved by the National Treasury, and not all projects are eligible for sovereign support. Risk allocation between the public and private partners must be carefully negotiated, particularly for demand risk, political risk and currency risk.

Practical Challenges

In practice, PPPs in Kenya face challenges including protracted procurement timelines, regulatory overlaps, and difficulties in securing land rights. Political changes and government as well as government priorities can also delay or alter projects, leaving private investors in uncertainty. Long-term local currency financing remains scarce, which often necessitates the engagement of international lenders and exposes projects to exchange rate risks.

Outlook

Despite these issues, PPPs remain at the centre of Kenya’s policy of financing infrastructure in energy, transport, housing and water. Recent reforms implemented by the 2021 Act to reduce approvals and assist in attracting more private investment should begin to bear fruit. As the system continues to mature, Kenya can look forward to increased PPP activity, driven by green energy and digital infrastructure.

Governing Law of Project Documents

Kenyan law does not require that all project documents be governed by local law. Local law typically applies to construction contracts, land contracts and security documents since these are directly involved with assets and obligations within Kenya. However, for financing agreements, power purchase agreements, and offtake contracts, parties will prefer foreign governing law such as English or New York law, particularly where international lenders are involved.

Dispute Resolution Practice

Parties to Kenyan high-stakes projects normally favour international arbitration as the ideal dispute resolution procedure. The International Chamber of Commerce (ICC) or the London Court of International Arbitration (LCIA) are commonly chosen institutions. Arbitration is attractive because it provides neutrality, enforceability under the New York Convention, and greater ease for foreign investors who may be apprehensive about proceedings in local courts.

Local Court Considerations

Kenyan courts will uphold foreign governing law provisions and arbitration clauses, provided that they do not violate public policy. Land disputes or regulatory permit-related disputes, however, can require the imposition of Kenyan law compulsorily and determination by courts within the country. The parties are therefore advised to draft contracts with prudence so that there is no incongruity in the choice of foreign law and arbitration vis-à-vis obligatory domestic legal requirements.

Practical Outlook

English or New York law with international arbitration is also strongly rooted in Kenya’s project finance practice, particularly in high-profile energy and infrastructure projects. Lenders and sponsors typically do not object to a hybrid approach, wherein project documents with high local content are regulated by Kenyan law, while financing and revenue arrangements are regulated by foreign law. This balancing achieves commercial certainty at the cost of mandatory local rules compliance.

Restrictions on Holding Land

Kenyan law places constitutional limitations on foreign ownership of land. Foreigners may take land only on leaseholds for a maximum duration of 99 years and can never take freeholds. The provisions apply alike to individuals and companies dominated by foreign non-citizens and voice the policy of keeping permanent holding of land in the country within the grasp of Kenyan citizens.

Kenyan law also prohibits transfer of agricultural land to foreigners or entities that are not fully Kenyan-owned.

Subsurface and Natural Resources

State ownership of rights in subsurface resources, minerals and water is provided for under the Constitution and legislation. Foreign investors cannot own them but may be issued licences or concessions by the government to extract them. Rights of this sort are tightly regulated and often subject to state approval and monitoring.

Lenders’ Security Rights

Security over land and related rights may be taken by foreign lenders by way of mortgage or charges, subject to the underlying ownership being consistent with Kenyan law. In enforcement cases, foreign lenders may enforce sale or possession remedies, but resulting ownership interest must always remain within constitutional limits on freehold ownership. In practice, lenders will structure enforcement through leasehold transfer or nominee arrangements to remain compliant.

Water Rights

Water is a public asset in Kenya and its utilisation is licensed by regulatory rules under the Water Act. Foreign investors can own the licences directly, as long as they are complying with the regulations. The rights over water are usufructuary and cannot be transformed into permanent rights of ownership.

In Kenya, project companies are typically incorporated as private limited liability companies pursuant to the Companies Act, 2015. This is the preferred legal form owing to its limited liability protection, governance flexibility, and acceptability by both local and foreign investors. In large projects, joint ventures or special purpose vehicles (SPVs) are commonly established to ring-fence risks and allocate responsibilities between sponsors.

Relevant Laws Governing Project Companies

The Companies Act requires incorporation, governance and disclosure. Other regulatory regimes apply depending on the sector – eg, Energy Act for power projects, Public–Private Partnerships Act for infrastructure concessions, or Water Act for water projects. Environmental and land-use legislation compliance is required at the company structuring stage and project approval.

Restrictions on Foreign Investment

Kenya has a fairly open investment climate, though there are constitutional restrictions on foreign ownership of land, with foreign entities not allowed to own agricultural land and only allowed to take leasehold interests not exceeding 99 years. Certain sectors that are regulated (including telecommunications and aviation) have foreign ownership restrictions with provisions for Kenyan interest.

Financing sources for projects include commercial banks, DFIs, grants and project bonds.

Kenyan natural resource projects are guided by a mix of constitutional provisions, sector-based legislation and government policy. The Constitution defines state ownership of natural resources such as minerals, oil, gas and water in trust for the people: that is, private entities require concessions, licences or production-sharing arrangements to explore and develop the resources.

One of the key issues is local participation. The Mining Act and Petroleum Act encourage joint ventures between foreign investors and locals, some with minimum local shareholding provisions. This is a statement of Kenya’s policy of resource nationalism and wanting to ensure that resource exploitation is for the benefit of the people through sharing revenue, employment and capacity building.

Restrictions on the exportation of raw materials also apply. For example, the government is keen on value addition and beneficiation within the country, particularly in the mining sector. Export licences are typically subject to evidence of the absence or inadequacy of local processing capacity. The policy is targeted towards industrialisation and maximising economic gain from natural resources.

Social and environmental issues are equally significant. Environmental and social assessments have to be conducted on projects, and there is a need for companies to engage with communities, especially where there is an issue of land rights and there has been displacement. Revenue sharing with county governments and local communities is also mandated by law, which creates another compliance and negotiation layer.

They must also consider stability risks. Natural resource projects are sometimes subject to shifting fiscal regimes, policy overviews or political heat, especially in extractive industries that are perceived as strategic. Long-term contracts will therefore need robust stabilisation provisions and dispute resolution clauses.

In general, successful natural resource projects in Kenya rely on careful structuring of licensing, local ownership, beneficiation requirements, environmental protection and social involvement, with some flexibility to contend with regulatory and political risks.

Environmental regulation is primarily covered by the Environmental Management and Coordination Act (EMCA), which makes provision for the National Environment Management Authority (NEMA) to function as the principal regulator. Developers must acquire EIA licences before commencing a project, and environmental audits are required when operating. Sectoral regulation, as embodied in the Water Act, the Mining Act and the Petroleum Act, imposes further requirements on waste management, emissions and site rehabilitation by projects. Pursuant to recent case law from the Environment and Land Court in Kenya, a climate impact assessment must be conducted and then considered by NEMA prior to issuance of an EIA licence.

Health and safety concerns fall within the Occupational Safety and Health Act (OSHA), which is enforced by the Directorate of Occupational Safety and Health Services (DOSHS). It is the responsibility of the employers to:

• maintain safe working conditions;
• provide protective equipment;
• conduct regular examinations; and
• document workplace accidents.

Where work involves building or heavy industries, adherence to building codes and industry sector safety standards is strictly regulated.

Consultation and public participation is a requirement under the Constitution that calls for public participation in issues affecting communities. Laws such as the Land Act, the Community Land Act, and EMCA also call for consultations, especially where development activities affect land rights, resettlement or use of natural resources. In the extractive industry, the Petroleum Act and Mining Act require that companies enter community development agreements, revenue sharing agreements and grievance mechanisms with host communities. County governments have also a watchdog role, given their constitutional mandate in land use planning and local development.

Collectively, these regulations guarantee that projects are responsibly designed, with oversight by NEMA, DOSHS, county governments and affected line ministries. Non-compliance causes delays in approval, attracts sanctions or triggers legal action, requiring early engagement with regulators and communities.