Kenya’s Balancing Act: Cheaper Credit, Tighter Budgets and a Market Looking for Direction
- Derry Thornalley
- 7 days ago
- 5 min read
On paper, Kenya’s macro story in late 2025 looks surprisingly calm.
Inflation is 4.6%, right in the middle of the government’s 2.5–7.5% target range. The Central Bank of Kenya (CBK) has cut its policy rate eight meetings in a row, from 13% in early 2024 to 9.25%today, arguing there is still room to ease. The World Bank this week nudged its 2025 growth forecast up to 4.9%, citing a rebound in construction and still-solid agriculture.
Yet scratch the surface and a more complicated picture emerges: heavy domestic borrowing to fund the state, a stock market struggling to regain investor interest, and a financial system adjusting to cheaper credit that still doesn’t feel cheap to most households.
Kenya, in other words, is walking a narrow policy tightrope.
Fiscal squeeze: smaller deficits, big borrowing
After several bruising years of debt scares and emergency refinancing, the National Treasury is trying to put the public finances on a stricter diet.
A new Medium Term Debt Strategy and borrowing plan show how stark that adjustment is meant to be. In FY 2024/25, Kenya’s net financing requirement was about KSh 1.03 trillion, roughly 5.9% of GDP, funded overwhelmingly at home: domestic markets supplied KSh 853.4 billion (4.9% of GDP), versus just KSh 178.9 billion (1.0% of GDP) from external sources.
Looking ahead, officials are promising to do more with less. Treasury Principal Secretary Chris Kiptoo said last week that the government will target a 4.9% of GDP deficit in 2026/27, to be financed by roughly KSh 775.8 billion of domestic borrowing and KSh 241.8 billion externally.
Ratings agencies are watching closely. In July, Moody’s warned that Kenya’s cost of servicing its debt will remain “stubbornly high” as the state leans heavily on local markets; it estimates roughly two-thirds of fiscal financing – just under 4% of GDP a year – will come from domestic investors, leaving the country spending about one-third of its revenue on interest.
The message from both the IMF and the World Bank is clear: fiscal consolidation is essential, but the more the government taps local balance sheets, the more pressure it puts on banks, pension funds and insurers to choose between funding the state and lending to the real economy.
Cheaper money – but not cheap
On the monetary side, the CBK has been sending the opposite signal: easing, not tightening.
Since February, the Monetary Policy Committee has cut the Central Bank Rate from 10.75% to 9.25%, citing stable inflation and a need to revive private sector lending.
Commercial banks have followed, if slowly. CBK data show the average lending rate easing from around 16.6% in late 2024 to just over 15% by September 2025, with deposit rates edging down too.
The effect is starting to show up in the credit numbers:
New loans to households and businesses hit a two-year high of KSh 77.8 billion in September, according to the National Treasury – the strongest monthly flow since mid-2023.
Private-sector credit growth, which was contracting at the start of the year, has recovered to about 5% year-on-year.
CBK’s July Market Perceptions Survey found banks expect further recovery in private-sector credit in 2025, supported by declining lending rates and a more optimistic outlook for agriculture and construction.
Alongside the banks, a fast-growing digital lending industry has become a defining feature of Kenya’s credit landscape. Regulated digital credit providers advanced about KSh 76.8 billion in loans to the private sector by June 2025, surpassing the portfolio of microfinance banks, with 5.5 million active digital credit accounts.
For households, the result is a mixed blessing: credit is more available and gradually cheaper, but debt levels are mounting and the headline interest rates on many products still start with a “1” – a far cry from the single-digit costs suggested by the policy rate.
A stock market stuck in neutral
If the macro narrative is improving, you wouldn’t immediately know it from the Nairobi Securities Exchange (NSE).
As of 25 November 2025, the NSE All Share Index (NASI) was at 182.5 points, down on the day and well below levels seen earlier in the decade. The NSE 20 and NSE 25 indices show a similar pattern, with periodic rallies fading into sideways or declining trade.
Market capitalisation hovers just under KSh 3 trillion, and while daily equity turnover can spike – especially on dividend news or corporate actions – volumes remain patchy. Local fund managers talk of a “buyers’ market without buyers”: valuations look attractive on paper, but risk appetite is muted as institutions juggle regulatory changes, ESG demands and heavy sovereign exposure.
The paradox is that macro-stability without a clear growth or reform narrative is not always enough to pull investors back into equities, especially when government paper offers double-digit yields and the state is vacuuming up liquidity.
Where Verī Platform fits into Kenya’s balancing act
For Kenyan banks, asset managers, pension funds and insurers, this environment creates a very specific challenge:
The state needs them to keep buying domestic government bonds and supporting local markets.
Their clients – from retail savers to pension trustees – want better-diversified portfolios that can capture growth in Kenya, across Africa and globally.
Regulators and rating agencies are demanding clearer risk management and visibility across all of those exposures.
Verī Platform is built to sit behind those regulated institutions and quietly solve that problem.
Within a single, regulated environment, a Kenyan institution can:
Hold local assets – government securities, NSE-listed shares, local corporate bonds – alongside regional and international investments (pan-African funds, global equities, ETFs, infrastructure vehicles);
Plug into multiple custodians and trading venues, while maintaining a consolidated, look-through ledger that reconciles every client account daily;
Generate supervisor-ready reporting so that the CBK, Capital Markets Authority and Retirement Benefits Authority can see exactly where currency, duration and issuer risks sit – without stifling innovation or cross-border diversification.
In practice, that might mean a Kenyan bank offering its wealth clients a portfolio that blends:
A core of KES government bonds and NSE blue-chips,
A measured allocation to regional African equity and fixed-income strategies,
Select global exposures in sectors like technology or healthcare,
all visible on one statement, under one governance and compliance framework.
In an economy where policy is trying to tighten the fiscal screws while loosening monetary ones, that kind of architecture becomes less of a “nice-to-have” and more of a way to stay on the right side of regulators, rating agencies and clients at the same time.
A narrow but navigable path
Kenya ends 2025 in an unusual position: not in crisis, but not yet comfortable either.
Growth is recovering, inflation is under control, and international partners still see a country with strong underlying potential. At the same time, heavy domestic borrowing, high interest-to-revenue ratios and a still-hesitant equity market underline how limited the room for error has become.
The next few years will show whether policymakers can keep their balance – delivering on promises of fiscal discipline and structural reform while allowing cheaper credit and deeper capital markets to do their work.
the institutions that sit at the heart of Kenya’s financial system, the task will be to use every available tool – including platforms that widen opportunity sets while tightening control – to make sure that this delicate balancing act ends not in another bout of instability, but in the sustained, broad-based growth Kenyans have been promised for more than a decade.
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