Kenya’s CBK sets new $7.86m capital rules for credit guarantee firms to strengthen MSME lending confidence and financial stability.
CBK Sets $7.86M Capital Floor for Guarantors
The Central Bank of Kenya (CBK) issued a public notice on September 25, 2025 demanding that credit guarantee firms maintain at least KSh 1 billion ($7.86 million) in core capital. The new rules stem from the draft Credit Guarantee Business Regulations, 2025.
You can view the full draft regulations here:
PUBLIC NOTICE – Invitation for Comments (PDF)
In its notice, CBK explained the goal: to create a well-capitalised base so guarantors can absorb potential losses on the bank loans they insure. This August, the CBK sought public views on new 2025 rules that will keep loan apps and other lenders in check.
Why This Matters for MSMEs
Micro, Small, and Medium Enterprises (MSMEs) are central to Kenya’s economy. The Kenya National Bureau of Statistics (KNBS) reports they provide over 80% of employment and about 40% of GDP.
Yet many MSMEs struggle to access affordable credit, because banks often regard them as high-risk. Credit guarantee firms help by taking on part of that risk. But without sufficient capital, they cannot credibly back large loans.
By enforcing stricter capital requirements, CBK hopes lenders will feel more confident using guarantees and thus increase credit flow to MSMEs.
Key Provisions in the Draft
The proposed regulations include several major changes:
- Capital ratios: Firms must hold 10.5% core capital / risk-weighted assets and 14.5% total capital / risk-weighted assets.
- Licence/fees: An application fee of KSh 100,000 ($786) and annual licence fee of KSh 500,000 ($3,929).
- Ownership limit: No individual may hold more than 25% in a guarantee firm.
- Business restrictions: Firms may not take deposits or lend directly — their sole function is to provide credit-risk cover to lenders.
- Transition period: Existing firms get five years to comply.
The draft notice also clarifies that foreign government–owned entities and commercial banks are exempt from the licensing process, though they must comply with prudential rules if they operate guarantee functions.
Strengthening Oversight & Governance
Under the Business Laws (Amendment) Act, 2024, CBK now has formal authority to supervise credit guarantee firms. The draft rules supplement this by requiring better governance structures, risk management, and minimum capital standards.
CBK’s aim is to reduce the risk of undercapitalized guarantors failing under stress, thus protecting lenders and the broader financial system.
Potential Impact on Lending & Growth
With more robust guarantees, banks may expand credit to MSMEs, especially those that previously lacked collateral or credit history.
International evidence shows credit guarantee systems can boost SME lending and economic growth. If implemented well, Kenya’s version could narrow the gap between small business demand for credit and actual supply.
Analysts believe this could drive a 20–30% increase in MSME credit uptake over five years — a substantial shift for the segment.
What Happens Next
The public consultation period is open now through October 15, 2025, per CBK’s notice.
Stakeholders — including banks, guarantee firms, MSMEs, and policymakers — can submit feedback via an online form or in writing.
CBK expects to finalize and implement the regulations in early 2026, following review and possible revisions based on public input.
Bottom Line
With these reforms, CBK signals a major shift: credit guarantee firms must be strong, regulated, and transparent. A KSh 1 billion ($7.86M) capital floor is a clear marker of seriousness.
If these rules hold, lenders may expand credit to Kenya’s growing small business sector with greater confidence. That could accelerate growth, jobs, and innovation across the economy.
