How the new draft Central Bank of Kenya regulations would impact banks, DFIs, fintechs and SMEs if passed

The Central Bank of Kenya (CBK) has published draft Credit Guarantee Business Regulations, 2025 for public consultation. If adopted, these regulations will for the first time bring all credit guarantee providers under CBK supervision. Our analysis here is based on the draft as issued and may change once the final text is gazetted.

Kenya’s guarantee landscape has developed over time through the National Treasury’s SME Credit Guarantee Scheme launched in 2020, through multilateral and development finance programmes such as African Guarantee Fund, GuarantCo, ATI, IFC and USAID’s Development Credit Authority, and through internal guarantee products within some banks for SME and agribusiness portfolios.

These arrangements have existed without a unified prudential framework and have relied on contractual structures and donor mandates.

Why CBK is intervening

The policy objective is to enhance financial stability, ensure standardisation and transparency, protect borrowers who indirectly rely on guarantees, and provide policymakers with reliable data to guide credit policy. Guarantees create contingent liabilities that can transmit stress to lenders when poorly structured or undercapitalised, so a clear supervisory framework is intended to anchor prudence and market confidence.

What the draft regulations require

The draft sets demanding conditions that mirror bank-like prudence. Providers will need at least one billion shillings in core capital and must observe capital adequacy ratios. Shareholding by any single investor is capped at a quarter unless the entity is a public body or multilateral development bank. Boards must be majority non-executive and supported by audit, risk and guarantee committees. Directors and senior officers are subject to strict fitness and probity standards. Guarantee portfolios are to be classified and provisioned in line with CBK rules and IFRS. Providers must comply with the Data Protection Act and anti-money-laundering obligations. A five-year transition applies once the regulations come into force.

Policy trade-offs

The framework should strengthen credibility and reassure banks and SACCOs that counterparties are sound, which in turn can unlock lending to SMEs, agribusiness and climate-linked projects. The trade-off is a higher bar to entry that will challenge smaller donor-backed schemes and innovative start-ups, and a rise in compliance costs that may be passed to borrowers in the short term.

Bank subsidiaries that run guarantee operations may need to restructure, recapitalise or seek separate licences.

What to expect in the market

If the regulations are passed, the market is likely to consolidate around a smaller group of well-capitalised providers such as African Guarantee Fund, GuarantCo, and ATI. Development finance institutions (DFIs) may negotiate targeted exemptions or formalise their presence through locally licensed vehicles. Banks with internal guarantee products will need to regularise those arrangements through licensing. Fintechs and digital lenders are likely to pivot to partnership models with licensed guarantors. Thematic guarantees in climate finance, digital credit portfolios and regional trade are expected to grow as confidence builds.

Winners and losers

Large multilateral and bank-backed providers with the capacity to meet CBK thresholds are positioned to benefit under the draft regulations. Banks and SACCOs gain stronger counterparties. SMEs should see more reliable access to guaranteed credit once the market adjusts. Smaller schemes, under-capitalised subsidiaries, and early-stage innovators are most exposed to the new bar, and borrowers may face higher costs in the near term while compliance embeds.

Consultation details and timing

CBK has invited public comments on the draft regulations, with the deadline for submissions being next Wednesday, 15 October 2025. Stakeholders can submit feedback through the online form (access here) and by the channels indicated in the CBK notice. Organisations with existing guarantee arrangements, including bank subsidiaries and multilateral programmes, should review their structures now and prepare representations within the consultation window.

Our view and how Cavendrys can help

Cavendrys views this reform as both a compliance moment and a strategic opening.

If the regulations are adopted, banks with guarantee subsidiaries will need licensing strategies, governance enhancements and portfolio-level provisioning policies that pass prudential scrutiny. Multilateral and development finance institutions such as IFC, USAID, AfDB and FMO will benefit from structuring that preserves their mandates while aligning with CBK oversight. Our team combines financial services regulation, fintech structuring, data governance and market execution experience across East Africa. We help bank affiliates design ring-fenced guarantee vehicles, prepare licence packs, set up risk and audit committees, and calibrate IFRS and CBK provisioning. We also support DFIs to document local partnerships, negotiate tailored exemptions where appropriate, and operationalise reporting that satisfies both donor and prudential expectations.

For decision makers, the next five years will be decisive. Those who move early to align with the framework will secure compliance, build lender confidence and position themselves to scale guarantee solutions that expand access to credit. Cavendrys stands ready to advise on restructuring options, licence readiness, governance design and market positioning for the new regime.

Janet Othero is the Managing Partner of Cavendrys and a renowned Kenyan lawyer who earlier this year alongside fellow TDFI expert Catherine Mulika established their specialist firm.

The draft Central Bank of Kenya (Credit Guarantee Business) Regulations, 2025 can be accessed here, along with the full public notice from the CBK and the link for submitting public comments.