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Equity, Co-op owe State Sh457m on failed schemes left
Equity Bank on Muindi Mbingu Street (left) and Co-operative Bank on Parliament Road, Nairobi. The two owe the government Sh457 million arising from historical agreements.
Equity Bank and Co-operative Bank of Kenya owe the government Sh457 million arising from historical agreements where the State provided funds to the firms for onward lending to businesses, including in the agricultural sector.
Latest Treasury debt disclosures show the two tier-one lenders had the combined amount outstanding as at the end of last financial year in June 2025.
The Treasury disbursed a combined Sh784 million to the two banks for onward lending to targeted groups under government-sponsored credit programmes over many years.
The disclosures show that only Sh327 million had been repaid in the review period.
Co-op Bank owed the State Sh267 million outstanding out of Sh339 million it received for onward lending while Equity Bank has a balance of Sh190 million out of the Sh445 million channeled through its network.
A senior official at one of Kenya's two largest lenders by customer base said the exposure stems from an old government fund created to support smallholder farmers across multiple agricultural subsectors.
“This item was an old government kitty to support farmers that the bank received from the government for on-lending,” the official said.
The funds were advanced to farmers involved in cotton, irrigation, pyrethrum and dairy, with banks tasked with collecting repayments and remitting them back to the government.
The repayment rates were poor, leaving residual balances that have persisted long after the original programmes collapsed.
The outstanding balances have periodically resurfaced in Treasury’s debt disclosures as government receivables, despite having little connection to current bank lending activity.
“A majority of farmers didn’t pay back, which now reflects as the outstanding amount,” the official said, adding that some loans were advanced as far back as the late 1980s.
The legacy nature of the bank-linked loans mirrors similar exposures previously held by Kenya’s two largest deposit-taking microfinance institutions.
Faulu Microfinance Bank and Kenya Women Microfinance Bank (KWFT) had previously owed the State a combined Sh477 million under comparable government on-lending arrangements. Treasury data shows those loans were either fully repaid or written off by the financial year ended June 2023, leaving zero outstanding balances.
The clean-up contrasts with the unresolved balances tied to Equity and Co-op Bank, which continue to appear in fiscal disclosures despite their limited relevance to current banking activity.
The exposure of Equity and Co-op Bank forms a small but symbolic part of a much larger stock of government on-lent loans that has become a growing fiscal concern.
According to the Treasury’s latest Annual Debt Management Report, the cumulative stock of on-lent and government direct loans, largely to strategic parastatals, stood at Sh1.05 trillion as at end-June 2025.
More than half (52 percent) of that exposure, or nearly Sh547.38 billion, is concentrated in Kenya Railways Corporation, underscoring systemic risks in the State on-lending framework.
During the review period, cumulative repayments amounted to Sh76.93 billion, equivalent to a measly 7.32 percent of the total loan stock.
“This low repayment rate underscores persistent challenges in loan recovery, raising concerns about the sustainability of on-lending and GoK Direct Loans arrangements and the potential fiscal burden on the Government in the event of defaults by beneficiary entities,” the Treasury wrote in the latest debt management report.
The on-lending model typically involves the Treasury borrowing from foreign and domestic lenders, then passing the funds to state-owned enterprises considered strategically important.
Many of these entities are unable to access financing independently due to weak balance sheets, poor cash flows or limited commercial viability.
As a prerequisite, Treasury policy requires projects funded through on-lent credit to “hold a top-level priority on the development agenda of the government”.
In practice, however, weak project performance, political interference and poor remittance structures have turned many of the loans into quasi-grants.
