CBK Tightens Rules to Boost Confidence in Credit Guarantee Sector

The Central Bank of Kenya (CBK) has unveiled draft regulations that could transform Kenya’s credit guarantee industry by strengthening its financial base. The rules require firms in the sector to hold at least Sh1 billion in core capital and maintain strict capital adequacy ratios.

CBK said the measures are designed to safeguard the stability of firms that support loans to micro, small, and medium enterprises (MSMEs). By ensuring credit guarantors can absorb losses from defaults, the regulator hopes to encourage banks to lend more confidently to smaller businesses.

The regulations are part of the Business Laws (Amendment) Act, 2024, which placed credit guarantee firms under CBK oversight. They introduce formal licensing, with applicants paying Sh100,000 upfront and Sh500,000 annually.

Industry players face new limits on ownership, with individual shareholding capped at 25%, and restrictions barring them from deposit-taking or lending directly. Existing operators have five years to comply, while commercial banks and some foreign government-owned entities are exempt.

CBK noted that the reforms are expected to create a well-capitalized and credible guarantee system, helping unlock affordable credit for MSMEs, a sector long seen as the backbone of Kenya’s economy.