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Kenya pays Sh19bn over eight years for loans tapped but not used
A commitment fee secures a lender's promise to provide the credit line on the agreed terms at specific dates, regardless of the conditions of the financial markets.
Kenya paid Sh18.9 billion in loan commitment fees over eight years, mirroring the financial burden of non-disbursed committed loans.
A commitment fee is a payment that is charged by a lender to a borrower to compensate the lender for keeping a credit line open. The fee also secures a lender's promise to provide the credit line on the agreed terms at specific dates, regardless of the conditions of the financial markets.
The Parliamentary Budget Office (PBO)—the office which advises Members of Parliament on budget planning—made the disclosures of commitment fees pile up in a report even as it urged for the timely utilisation of contracted loans to avoid the charges.
“By June 2024, Kenya had contracted but not yet disbursed debt totalling Sh1.38 trillion, resulting in approximately Sh1.58 billion in commitment fees. Between June 2016 and June 2024, the country cumulatively incurred a total of Sh8.9 billion in commitment fees for undisbursed loans, underscoring the financial burden of underutilised borrowed funds,” the PBO said in a new report assessing the 2025/26 budget proposals.
“The delays in the disbursement of loans defer the expected economic and social gains of the planned projects or programs. Given the developmental importance of these loans, particularly concessional ones from the World Bank with favourable terms such as low interest rates and extended grace periods, it is critical to ensure their timely utilisation to avoid unnecessary commitment fees,” it added.
The findings from the PBO imply that Kenya is spending an average of Sh2.3 billion each financial year to cover the unutilised loan facilities.
The commitment fee compensates the lender for the risks associated with an open credit line despite uncertain future market conditions and the lender’s current inability to charge interest on the principal. The fees are mostly a percentage of the loan amount and are usually paid up front.
Commitment fees can either be fixed where the charges are pre-determined regardless of how much of the loan is drawn or negotiated between the lender and the borrower.
The accumulation of loan commitment fees has drawn the ire of various budget control offices including the Auditor-General who has recommended steps to ensure the proper utilisation of the billions of loans contracted.
Auditor-General Nancy Gathungu has asked the National Treasury to scrutinise, negotiate loan terms, and be adequately involved with the project executing agency during loan negotiations and preparation during the drawdown of project loans.
Some of the reasons given for the payment of commitment fees include delays in drawing the first disbursement and undrawn balances after project completion.
A report from the Auditor-General on 32 sampled projects for instance showed that only two projects had drawn down the first disbursement on time.
Other projects that failed to draw down funds due to the inability to meet conditions included the signing of the subsidiary loan agreement, delays in obtaining no-objection certificates to start work on-site, and the provision of government counterparty funding.
