Kenya: Pending State Bills Push SMEs to Alternative Financing

What the report says

Capital FM, in a report distributed by AllAfrica, says Kenyan small and medium-sized enterprises are increasingly seeking structured trade finance as delayed public-sector payments worsen cash-flow pressures. The report, datelined Nairobi on July 27, cites Controller of Budget data showing national and county government pending bills reached Sh465.87 billion by March 2026, up 10.5% from Sh421.6 billion a year earlier.

The affected businesses include suppliers and contractors serving ministries, state agencies and county governments. Capital FM reports that payment waits commonly run 30 to 90 days and can stretch much longer, leaving firms short of working capital. Economists cited in the article warn that the arrears are pushing some companies into costly short-term borrowing simply to keep operations running.

The report says the National Treasury has approved a Sh255 billion payout toward the arrears, but also estimates that clearing the historical backlog will take at least two fiscal years. Julius Ouma, chief executive of Faulu Microfinance Bank, told Capital FM that SMEs still need quicker and more transparent settlements, and said many MSMEs are unable to access traditional bank credit because they lack standard fixed collateral.

Capital FM highlights Faulu, backed by Old Mutual, as one lender adapting products for businesses exposed to public tender delays. Its revamped trade finance offering includes local purchase order and invoice financing, bid and performance bonds, and advance payment guarantees, with credit structured around specific transactions and shared-risk underwriting. The issue matters because Kenya’s MSME sector is a major contributor to the economy, and prolonged state payment delays can weaken suppliers, limit tender participation and disrupt wider supply chains.