State-backed lenders are seeking a new law that would place them under a common regulatory framework, a move they say will strengthen governance, attract long-term capital and boost financing for key sectors of the economy.
The proposal, backed by the Kenya Development Corporation (KDC), would establish Kenya’s first regulatory regime specifically tailored for Development Finance Institutions (DFIs), which currently operate under separate statutes despite undertaking similar mandates.
Speaking during a sector chief executives’ forum in Nairobi, industry leaders said a uniform framework would harmonise operations, reporting requirements and capital standards across the institutions.
KDC Director-General Norah Ratemo said the proposed law would complement existing oversight mechanisms while creating common principles suited to development finance.
“A dedicated DFI regulatory framework would complement existing governance and oversight mechanisms by establishing common principles and standards tailored to the development finance sector,” Ms Ratemo said.
“In Kenya, we currently have four DFIs and so we want to standardise how we carry out our operations and how we are regulated in terms of capital adequacy and reporting structures.”
The institutions targeted by the reforms are KDC, the Kenya Industrial Estates (KIE), the Agricultural Finance Corporation (AFC) and the Tourism Finance Corporation (TFC).
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Unlike commercial banks, which largely provide short- and medium-term credit, DFIs finance projects that require extended repayment periods before generating returns. These include manufacturing plants, agro-processing facilities, tourism infrastructure, enterprise expansion programmes and other strategic investments.
The push comes at a time when the government is grappling with shrinking fiscal space amid rising debt-servicing obligations and growing demand for investment in sectors considered critical to economic growth.
Development financiers are increasingly being viewed as an alternative source of patient capital for projects that commercial lenders often avoid because of their long gestation periods and higher risk profiles.
Industry players argue that a stronger regulatory framework would improve investor confidence and enhance the institutions’ ability to mobilise long-term funding for industrialisation and economic transformation.
The proposal also mirrors a broader trend across Africa, where governments are strengthening development finance institutions to bridge financing gaps in industry, infrastructure and enterprise development.
In Kenya, concerns over the cost and availability of long-term credit have persisted despite efforts to stimulate investment in productive sectors.
Manufacturers and small businesses have repeatedly cited limited access to affordable financing as a major obstacle to expansion, job creation and competitiveness.
As Kenya pursues its industrialisation agenda, including increased value addition and export growth, policymakers are under pressure to develop financing models capable of supporting projects whose returns may take years to materialise.
