Small and medium-sized enterprises (SMEs) are the lifeblood of the economy. They make up more than 98 percent of businesses, employ about 14.9 million Kenyans, and contribute roughly 40 percent of the GDP.
SMEs are the engines of innovation, employment, and household income, the very foundation of Kenya’s Vision 2030 and the African Continental Free Trade Area.
Yet, as these enterprises expand into regional and global markets, an invisible but powerful threat of trade-based money laundering (TBML) has emerged. Once dismissed as a technical issue for banks and regulators, TBML is now a big risk shaping which businesses gain access to international finance and which are locked out.
TBML occurs when criminals disguise illicit funds as legitimate trade. They manipulate invoices, falsify pricing or quantities, and use shell companies or third-country routing to move money across borders under the guise of trade.
This misuse of commerce distorts markets, undermining the integrity of Kenya’s financial system. SMEs, the very enterprises driving Kenya’s growth, are often the easiest targets.
Many do not have the systems in place to identify suspicious transactions, nor the expertise to navigate global compliance frameworks.
As a result, they risk becoming unwilling conduits for illicit flows, exposing themselves to reputational damage or even criminal penalties.
Kenya’s grey-listing by the Financial Action Task Force has made this issue more urgent. The country’s financial system, and every transaction that touches it, is now under sharper scrutiny from international partners.
Banks, development financiers, and global trading companies are increasingly adopting a policy of de-risking, cutting ties with any business that cannot demonstrate transparency. For SMEs, this could mean delayed payments, cancelled contracts, or loss of access to correspondent banking channels vital for trade.
The irony is that TBML thrives not because Kenyan businesses are corrupt, but because many are unprepared. They see compliance as a cost rather than a competitiveness issue. Yet in today’s world, transparency is the new currency of trade.
Firms that can show verifiable trade documentation and transparent transactions are the ones global partners will trust.
This is why SMEs must rethink compliance as a business growth strategy. Practices such as knowing your customer protocols for supplier verification and using traceable payment systems are not bureaucratic hurdles; they are business enablers.
These protocols help SMEs build credibility and integrate smoothly into global supply chains. The recent push for beneficial ownership registration under the Business Registration Service, for instance, is part of a broader movement toward trade transparency. It is not the story itself, but a symptom of the world’s growing demand for clean trade.
But compliance cannot be achieved in isolation. Tackling TBML requires strong partnerships between SMEs and financial institutions. Banks are no longer just financiers; they are now the gatekeepers of trust in cross-border commerce.
A forward-looking bank must go beyond offering letters of credit; it must actively help its clients recognise and respond to red flags such as unusual pricing patterns, payments routed through unrelated third countries, or dealings with counterparties in sanctioned jurisdictions.
The risks of inaction are immense. Failure to address TBML could see Kenya’s SMEs excluded from lucrative regional and international markets just as the AfCFTA opens new frontiers for trade. Reputational damage could also spill over to the broader economy, discouraging foreign investment and making it harder for legitimate enterprises to access global finance.
Moreover, TBML weakens national revenue collection. When trade is manipulated to move illicit funds, governments lose taxes, customs duties, and foreign exchange. In the long term, this erodes the very foundations of economic stability and growth that SMEs help sustain.
Kenya stands at a crossroads. The same globalisation that is creating new export opportunities is also increasing exposure to complex financial risks. The winners of this new era will be the SMEs that treat integrity as their strongest competitive advantage.
To thrive, they must embed compliance into their business DNA. Regulators, banks, and business associations must also play their part, by simplifying compliance processes, increasing awareness, and rewarding businesses that demonstrate financial integrity.
Eunice Monzi is the Head of Trade Finance at Victoria Commercial Bank PLC in Kenya
