The Central Bank of Kenya (CBK) has taken firm action against the banking sector, imposing fines totalling KES 191 million (about $1.48 million) on 11 commercial banks for breaking important financial rules in 2024.

These penalties come as the CBK intensifies efforts to make credit more affordable for Kenyans and to strengthen trust in the country’s financial system.

What Happened?

According to the CBK’s latest report, most of the violations involved banks lending more than 25% of their core capital to a single borrower something the rules strictly forbid. This is a risky practice because if that borrower fails to repay, it could threaten the bank’s stability.

Other breaches included:

• Excessive insider lending – giving too many loans to related parties or company insiders.

• Liquidity shortfalls – not holding enough liquid assets to meet short-term obligations.

• Ownership breaches – some individual owners holding more than the legal 25% limit in a bank.

• Falling below statutory capital levels – five banks failed to meet the legal minimum capital requirement ahead of a planned increase in 2025.

The CBK noted that governance issues worsened compared to the year before. And while the regulator did not name the specific banks, it has sent a strong signal: the rules will be enforced, no matter how big or small the lender.

The Bigger Picture – Why This Is Happening

Since February 2024, the CBK has been trying to encourage more lending by cutting the base lending rate from 13% to 9.75%. The idea is simple: when borrowing becomes cheaper, businesses can expand, individuals can invest, and the economy can grow.

But many banks have been slow to lower their lending rates, even after the central bank reduced its own rates. This creates a “gap” between policy goals and real-world outcomes. To push banks into action, the CBK is not just lowering rates it’s now actively inspecting them on-site and warning that daily fines of up to KES 100,000 ($774) could be imposed for failing to comply.

Impact on African Businesses

1. Cost of Credit May Still Stay High (For Now)
   Even with pressure from the CBK, some banks might remain cautious about lowering rates too quickly, especially after paying heavy fines.

2. Tighter Lending Rules Mean Stricter Loan Approvals
   Businesses especially small and medium-sized enterprises (SMEs) may face more documentation and tougher vetting before securing loans.

3. Possible Shift to Alternative Finance
   With banks tightening their lending, more companies may turn to microfinance institutions, SACCOs, and fintech lenders for funding.

4. A Push for Better Governance Across Africa
   Kenya’s move could inspire other African central banks to enforce similar rules, increasing compliance costs but strengthening the overall financial system.

Opportunities & Challenges for Fintech Companies

While this crackdown may seem like a banking-only issue, it has big implications for fintech players:

• New Partnerships: Traditional banks might seek collaborations with fintechs that can provide better risk assessment tools, compliance monitoring, and efficient lending systems.

• Competitive Advantage: Digital lenders can adjust interest rates more quickly than banks, attracting borrowers looking for faster, cheaper financing.

• Need for Regulatory Preparedness: Fintechs should expect regulators to eventually apply similar rules to them, so aligning with capital, liquidity, and governance standards early is essential.

• Trust Factor: With public attention on governance failures in banks, fintech companies that demonstrate transparency and accountability will stand out.

The Bottom Line:
The CBK’s enforcement actions are not just about punishing rule-breakers they are about reshaping Kenya’s financial landscape to be more responsible, more transparent, and more affordable for borrowers.

For African businesses, especially those in the fintech space, this is both a challenge and an opportunity:

• A challenge because compliance expectations are rising.

• An opportunity because innovation, speed, and customer focus can help capture the market space left by cautious traditional lenders.

The financial environment is shifting and those who adapt quickly will be the ones who thrive.