Why government is the biggest winner in Kenya's lending market
Business
By
Graham Kajilwa
| Sep 16, 2025
The government has been criticised for being ‘the biggest beneficiary’ of the low-interest rate regime owing to the growing domestic public debt.
Experts in the financial sector who spoke during the launch of a report on the country’s economic performance for the first half of the year, argue that businesses are less likely to benefit from the reduced rate as the government is mopping up money from the market.
The report by the Institute for Public Finance (IPF) shows that the situation has been aggravated by the unpaid bills owed by government to suppliers.
IPF details in the report that pending bills have increased from Sh639 billion in March 2024 to Sh684 billion in March 2025.
“Seeing pending bills rise contradicts government’s stance in the 2024 budget policy statement that stated payment of verified pending bills were to guide allocation of resources,” reads the report by IPF titled “A Mid Year Diagnostic of Kenya’s Crossroads in 2025”.
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Despite reduced interest rate by the Central Bank of Kenya (CBK) since August last year, IPF Country Lead Daniel Ndirangu says lending rates on private loans is still sticky.
“It is not going down, why? The government is a more attractive borrower for banks. There is no incentive for banks to lend to private sector,” he said.
Growing domestic debt
Since June 2024 to September this year, the government has borrowed in excess of Sh1.1 trillion from the domestic market.
As at September 5, public domestic debt stood at Sh6.6 trillion, according to data from CBK.
Since August 2024, CBK has lowered the Central Bank Rate (CBR) which is the base lending rate and the rate at which the government borrows overdraft from CBK - from 13.0 per cent to the current 9.5 per cent.
Former Chairperson of Budget and Appropriation Committee in the National Assembly Ndindi Nyoro, who was part of the discussion said, the current situation shows that CBK and the government are mopping cash from private pockets.
“We have a situation where Kenya is having an expansionary monetary policy and lowering of lending rates, but who is benefiting?” he posed.
He argued that while on one hand CBK has reduced the rate, data from the government shows private sector lending is not growing as much.
Nyoro said the mandatory easing of monetary policy has become a debt management tool.
“That the only parameter being eyed in terms of monetary easing and lowering of rates is basically paying less interest in domestic debt,” he said.
Private sector
He added “Rates should go down as a way of incentivising private sector but we have rates going down and a report showing lending to private sector is shrinking.”
In its latest monetary policy committee (MPC) meeting in August, CBK presented data showing growth in commercial banks’ lending to the private sector which stood at 3.3 per cent in July 2025 compared to 2.2 per cent in June, and -2.9 percent in January 2025.
But a report by Controller of Budget for the year ended June 2025, indicates that the government borrowed Sh27 billion more in the financial year 2024/2025 but paid less in interest rate due to the low rates offered by CBK.
“The analysis of FY 2024/25 data from the National Treasury shows that the government paid interest on the overdraft amounting to Sh7.44 billion. This was a reduction of Sh2.19 billion from Sh9.63 billion paid during FY 2023/24,” reads the National Government Budget Implementation Review Report FY 2024/25.