By restoring payment discipline and clearing Sh526 billion in pending bills, Kenya may be activating one of the most powerful—and least costly—levers for SME growth, job creation and financial-sector stability.
Recent Treasury actions, including the clearance of Sh123 billion in verified arrears and a planned Sh175 billion bond to settle outstanding bills, have drawn attention to infrastructure suppliers.
However, the most far-reaching effects are likely to be felt in manufacturing and trade. These sectors sit at the heart of Kenya’s employment base, domestic value chains and regional commerce. They are also the most exposed to delayed payments, thin margins and high working-capital demands.
The Central Bank of Kenya’s plan to pilot instant payments to government suppliers through the bank-to-bank PesaLink platform strengthens this shift.
Together, these measures signal a structural change with implications well beyond public finance management. If implemented consistently, they could unlock SME liquidity, reduce systemic credit risk and create a new growth engine for banks as the country heads into an election year marked by slowing economic momentum.
The reforms matter because SMEs account for nearly 98 percent of all businesses in Kenya, generate about 30 percent of new jobs annually and contribute an estimated 30–40 percent of GDP.
Yet their greatest constraint has not been demand or entrepreneurship, but unreliable cash flow—especially from public-sector contracts.
As at mid-2025, national government pending bills stood at roughly Sh524.8–526 billion, rising further when county obligations are included. This amount rivals more than half of annual development spending in some sectors. Unlike stimulus financed through new borrowing, these are funds owed for goods and services already delivered.
Regionally, Kenya is an outlier. In South Africa and Nigeria, government suppliers typically face payment cycles of 30–60 days, supported by time-bound e-procurement systems.
SMEs have often waited 90–180 days—sometimes years—forcing them to borrow expensively, delay payments to workers and suppliers, or exit the market altogether. Auction notices in Monday’s newspapers, some tied to unpaid government work, underscore this reality.
The macroeconomic environment has amplified the strain. GDP growth slowed to 4.7 percent in 2024 from 5.7 percent a year earlier. Private-sector credit growth was just 0.9 per cent in 2024, improving to 4.4 percent by mid-2025.
Credit to the private sector remains about 32 per cent of GDP, while non-performing loans hover at 16–17 percent. This cycle is familiar: delayed payments weaken SMEs, defaults rise and banks tighten credit, further slowing growth.
Clearing arrears and settling new invoices promptly breaks this cycle. For SMEs, the difference between being paid in 120 days and two days is transformative. At the macro level, releasing Sh526 billion injects liquidity directly into the productive economy without adding public debt.
Handled well, timely payment reforms represent a rare win-win—strengthening SMEs, protecting jobs, improving bank asset quality and restoring fiscal credibility.
The writer is the Head of Business Banking, Prime Bank Ltd
