The private sector is facing an unprecedented liquidity crisis as mounting and systemic payment delays from ministries, state corporations and county governments choke business cash flows.
This persistent backlog of public sector pending bills is actively crippling operations, depressing private sector growth and triggering widespread job losses.
According to data from the Controller of Budget, outstanding public pending bills climbed to a record Sh465.87 billion as of March 2026, representing a 10.5 percent escalation from the Sh421.6 billion reported in March 2025.
Local suppliers and contractors routinely face payment delays of 30 to 90 days or longer, creating a persistent backlog that starves them of vital operating liquidity and forces them to secure expensive short-term debt just to maintain daily operations.
While the National Treasury recently approved a Sh255 billion disbursement to chip away at these arrears, it estimates a minimum of two fiscal years to fully clear the historical backlog. This means that SMEs still require faster, more transparent settlements to scale.
Kenya’s 7.4 million MSMEs form the backbone of the economy, accounting for nearly 40 percent of the nation’s gross domestic product.
Yet, despite their macroeconomic importance, these businesses are routinely locked out of conventional tier-one banking credit lines.
Traditional lending frameworks rely heavily on standard balance-sheet lending, which requires fixed collateral that most small enterprises lack. This structural rigidity creates a paradox where the economic engines of the country cannot access standard bank loans precisely when government payment delays threaten their survival.
To bridge this expanding cash deficit, financial institutions must pivot away from rigid balance-sheet assessments and adopt risk-sharing models. Partnering with reputable underwriters for instance, can enable lenders to effectively mitigate institutional exposure and transition away from standard, restrictive asset-backed lending.
Instead of relying on hard collateral, financial institutions can structure credit facilities around the operational trade cycle of SMEs, engineering customised financial instruments that precisely match the requirements of specific transaction phases.
This transition facilitates the deployment of agile financing mechanisms, such as local purchase order and invoice financing, which directly address the systemic cash-flow constraints of smaller enterprises.
Under these frameworks, businesses holding a verified supply contract or a portfolio of unpaid invoices can bypass standard wait times to secure immediate, upfront cash advances from lenders. This framework bypasses the traditional constraints of long corporate payment cycles, unlocking dormant liquidity and ensuring continuous operational cash flow throughout the fulfillment cycle.
Furthermore, lenders can supply fast-tracked bid bonds, performance bonds, and advance payment guarantees against partial security.
This specialized support ensures that SMEs can bid on multiple tenders simultaneously without locking up their vital operating capital.