Banking and Finance Law in Kenya

Banking and finance law in Kenya sits at the intersection of statute, central-bank regulation and commercial contract. The Central Bank of Kenya (CBK) exercises wide supervisory powers over banks, microfinance institutions, mortgage finance companies, payment-service providers and a growing roster of digital-credit platforms. Understanding how the regulatory framework is built — and where it can catch a borrower, lender or financer by surprise — is essential for any transaction of consequence in Kenya’s credit markets.

The regulatory framework

The Central Bank of Kenya Act (Cap. 491) establishes the CBK, defines its mandate — price stability, a sound financial system and an efficient payments system — and gives it authority to license, supervise and, where necessary, place in receivership any institution within its regulatory perimeter. The Banking Act (Cap. 488) governs commercial banks, mortgage finance companies and other deposit-taking institutions. Together these two statutes form the constitutional backbone of Kenya’s banking regulation.

Layered on top are the Microfinance Act 2006 (for deposit-taking microfinance institutions), the Kenya Deposit Insurance Act 2012 (deposit protection up to KES 500,000 per depositor), and a growing body of CBK Prudential Guidelines that cover capital adequacy (aligned progressively toward Basel III standards), liquidity management, credit risk, corporate governance, anti-money-laundering controls and consumer protection. The guidelines are statutory instruments with the force of law; a bank that breaches them risks regulatory sanction, not merely moral censure.

Digital credit and payments are regulated under the Central Bank of Kenya (Amendment) Act 2021, which brought previously unregulated digital-credit providers within the CBK’s licensing perimeter, and the National Payment System Act 2011, which underpins mobile money and payment-service-provider licensing.

Licensing and entry

No person may carry on “banking business” in Kenya without a licence issued by the CBK under section 4 of the Banking Act. The Act defines banking business as accepting money on deposit repayable on demand or otherwise, and employing that money by lending to others. The definition is deliberately wide. A holding company that takes deposits from group subsidiaries and on-lends the proceeds may fall within it. A peer-to-peer lending platform that pools funds from individual investors before disbursing them to borrowers very likely does.

Minimum core capital requirements have been progressively increased; as at the time of writing, commercial banks must maintain core capital of KES 1 billion. The licensing process involves a fit-and-proper assessment of shareholders, directors and senior management, a review of the proposed business model, and a determination that the applicant will not pose a systemic risk. Approval can take six to twelve months and requires a detailed information memorandum submitted to CBK Banking Supervision.

Security over assets in Kenya

Land

Security over land is taken by way of a charge under the Land Registration Act 2012 and the Land Act 2012. A charge must be registered at the Land Registry against the title to the property. The statutory power of sale under the Land Act gives a chargee defined rights to sell without court order, subject to notice requirements; our detailed guide on the statutory power of sale in Kenya explains those notice obligations. Charges over land in trust land areas governed by county government require additional consent.

Movable assets

The Movable Property Security Rights Act 2017 (MPSR Act) replaced the fragmented, possession-based system under the old Bills of Sale Act and the Chattels Transfer Act. It creates a single notice-filing system: a security interest in movable property (equipment, inventory, receivables, intellectual property, livestock, crops) is perfected by filing a financing statement in the Collateral Registry maintained by the Attorney-General’s office. An unfiled security interest is valid between the parties but loses priority to a subsequent holder who files first or takes possession.

The MPSR Act is technology-neutral: the registry is electronic, filings can be made and searched online, and the priority rules follow a straightforward “first to file or perfect” principle adapted from the UNCITRAL Model Law on Secured Transactions.

Shares and company assets

A charge over shares in a Kenyan company is taken by way of a share pledge or equitable mortgage of shares. To be effective against third parties, the charge must be registered at the Companies Registry (section 103 of the Companies Act 2015) within 30 days of creation. For listed company shares, notification to the Central Depository and Settlement Corporation (CDSC) is also required. A debenture — which creates a fixed and floating charge over all present and future assets — must similarly be registered at the Companies Registry.

Loan agreements and key terms

Kenyan loan documentation borrows heavily from Loan Market Association (LMA) precedents adapted for local law. Key local law points include:

• Interest: Following repeal of the interest-rate cap in 2019, parties are free to agree a commercial rate. The CBK publishes a Central Bank Rate (CBR) that banks use as a pricing reference; CBK Circular BSD/DIR/PG/PRP/04/2020 requires banks to disclose the full Annual Percentage Rate (APR) in a standard format.
• Withholding tax: Interest paid to a non-resident lender is subject to withholding tax at 15% (or a reduced treaty rate). The treaty network is relevant on cross-border facilities; Kenya has double-tax treaties with several jurisdictions including the UK, Canada, Germany, India and Denmark.
• Stamp duty: A loan agreement is not generally subject to stamp duty in Kenya, but a charge over land or shares may attract duty at prescribed rates.
• Foreign currency: CBK approval is required for foreign-currency-denominated loans from non-residents above certain thresholds; the External Borrowing Guidelines set out the conditions.

Anti-money-laundering obligations

The Proceeds of Crime and Anti-Money Laundering Act 2009 (POCAMLA) imposes know-your-customer (KYC), customer-due-diligence (CDD) and suspicious-transaction-reporting obligations on all reporting institutions, which include banks, microfinance institutions, insurance companies, securities dealers and casinos. The Financial Reporting Centre (FRC) is the anti-money-laundering authority. Banks must appoint a designated anti-money-laundering compliance officer, maintain transaction records for at least seven years, and file Suspicious Transaction Reports and Cash Transaction Reports as required. The AML Act 2023 strengthened the FRC’s powers and brought additional categories of entities within the reporting perimeter.

What you should do now

For borrowers and issuers

Before drawing down a facility, confirm that all security documents are duly executed and registered in the correct registries. An unregistered charge is valid between the parties but loses priority on the borrower’s insolvency. For cross-border facilities, check whether CBK approval is required and whether treaty relief is available on withholding tax. If your business involves deposit-taking or digital credit, take advice on whether a CBK licence is required before launch.

For lenders and credit providers

Review your lending terms against the CBK’s current consumer-protection and disclosure requirements. If you are a regulated bank, ensure your prudential returns, capital adequacy calculations and liquidity ratios are current. For cross-border syndicated facilities, the governing law and enforcement provisions require local law advice on security perfection and enforcement steps in Kenya.

For investors and acquirers of financial institutions

A change of control in a CBK-regulated institution requires prior CBK approval. The fit-and-proper assessment of incoming shareholders and directors is thorough; a due-diligence exercise on the target institution’s regulatory standing — capital adequacy, non-performing loan ratios, pending CBK inspections and supervisory concerns — is essential before signing.

Frequently asked questions

How OLM Law can help

OLM Law’s banking and finance team advises lenders, borrowers, project sponsors and financial institutions on the full range of Kenyan credit transactions — from bilateral facilities and syndicated lending to structured finance, project finance and debt capital markets. We draft and review facility agreements, security documents and intercreditor arrangements, advise on CBK licensing and regulatory compliance, and represent clients before the CBK and in enforcement proceedings. To discuss your transaction or regulatory question, contact us at [email protected].

Sources and authorities

About the author

Kenneth Likoko

Partner · Advocate of the High Court of Kenya

Kenneth is a Partner at OLM Law Advocates LLP, advising financial institutions, technology companies and corporate clients on banking and finance, data protection and privacy, and mergers and acquisitions across Kenya and East Africa.

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