The government plans to invest idle collections from the newly reintroduced Sugar Development Levy (SDL) in Treasury bills, bonds, and call deposit accounts. This signals the State’s expectation of a low absorption rate of the funds meant to support key programmes, including factory upgrades, infrastructure maintenance, research, and credit to cane growers.
Bonds are medium- to long-term government securities, which indicates that the government’s collections through the reintroduced SDL are likely to grow at a faster rate than disbursements amid tighter conditions for borrowers.
The Kenya Sugar Board (KSB), which administers SDL collections under a Sugar Development Fund (SDF), said that funds that are not required for immediate utilisation, would be invested in financial instruments giving the best possible returns.
“The investments could either be on a short-term or long-term basis, depending on the cash flow projections,” KSB said in proposals seen by the Business Daily.
“Quarterly cash flow projections will be prepared on monies expected to be received and disbursed. Any funds not required for immediate utilisation, will be invested in Treasury bills, bonds or call deposits. For call deposits, the board shall negotiate for competitive interest rates from approved commercial banks,” the regulator added.
Most Treasury bonds in Kenya offer a fixed rate, meaning that the interest rate determined at auction is locked in for the entire life of the bond. This makes the bonds a predictable, long-term source of income. The National Treasury also occasionally issues tax-exempt infrastructure bonds, which are a very attractive investment.
A call deposit, on the other hand, is an investment account into which a customer deposits a specified amount of money for an indefinite period of time for a return.
Housing levy case
The plans by KSB to sink idle SDF cash in bonds mirror a strategy that earned the State Department for Housing and Development billions of shillings in interest income from billions of shillings in housing levy collections.
Disclosures to Parliament in June 2025 revealed that the government had earned Sh4.2 billion interest income from billions of shillings in housing levy collections invested in Treasury bills, riding on good interest rates on the securities that hit record highs of 16 percent to 17 percent last year on investor demand.
The housing funds were invested amid a low absorption rate. The levy is intended to fund the construction of cheaper homes for low and middle-income households.
The State Department for Housing and Development, in a report to the Budget and Appropriations Committee of the National Assembly, also revealed a Sh30.3 billion cash pile of unspent collections from the housing levy, which is set at 1.5 percent of gross employee salaries and matched by employers.
Bad loans
Insiders told Business Daily that the reintroduced SDL is expected to net billions of shillings that may not be immediately disbursed owing to tighter credit terms introduced to tame bad loans.
“The loan terms under SDF have been reviewed substantially to deal with bad loans that were becoming a concern. With this, we project that the collections through the SDL may not be disbursed rapidly, and it would only be prudent to put the cash into investments rather than keep it idle,” a senior source at the Ministry of Agriculture told Business Daily.
In 2023, Kenya’s sugar imports alone were valued at Sh23 billion, giving a glimpse of the anticipated SDL collection, especially this year when inflows of the sweetener are projected to surge amid mass closure of factories in western Kenya on low supply of mature cane.
The SDF is administered by the KSB and seeded through the SDL, which is collected by the Kenya Revenue Authority (KRA) starting July 1, 2025. The SDL is charged on both imported and locally produced sugar.
Every local miller pays four percent of the ex-factory price of the produce by the 10th day of the month immediately following the month in which the sugar is manufactured. The SDL is also payable at four percent on the cost, insurance, and freight (CIF) value of each consignment of imported sugar falling under the East African Community Common External Tariff. CIF is an international shipping agreement that represents the charges paid by a seller to cover the costs, insurance, and freight of a buyer’s order while the cargo is in transit.
Repayment of loans through the SDL has, however, been challenging over the years, with official records indicating that borrowers had by 2024 defaulted on an estimated Sh3.7 billion.
To curb the bad loans, the State has shaken up credit terms under the SDF — a development that is likely to slow down disbursements.
For example, individual sugarcane farmers tapping credit from the SDF face tougher scrutiny of their credit records as the State attempts to tame runaway loan defaults.
The State now plans to focus on the credit records of borrowers, including a requirement that they provide mandatory clearance by a credit reference bureau and the KRA.
“In order to access the SDF loan facility, an applicant shall: a) abide by the industry regulations, guidelines and standards; b) not have any non-performing loan(s) with the Board; c) submit a duly filled application form accompanied with a business proposal; d) submit a copy of their KRA - PIN Certificate; e) submit a valid tax compliance certificate; f) submit a valid CR 12 Form; and g) submit a credit reference bureau report,” the State said.
