Kenya pending bills impact on SMEs worsens, Faulu Microfinance Bank plugs cash deficit with alternative trade

• Kenya's SMEs face a severe liquidity crunch due to unpaid government pending bills, with outstanding public pending bills standing at Sh465.87 billion as of March 2026.
• Alternative financiers are moving fast to plug the cash deficit, with Faulu Microfinance Bank overhauling its trade finance portfolio to support small businesses.
• Faulu's mitigated credit strategy relies on partnering with reputable underwriters to share risk and offers customized financial instruments tailored to specific transaction phases.

While Kenya's 7.4 million MSMEs account for nearly 40 percent of the nation's gross domestic product (GDP), they are routinely locked out of conventional tier-one banking credit lines due to a lack of standard fixed collateral.

The severe liquidity crunch faced by small and medium-sized enterprises (SMEs) in Kenya is not a new phenomenon, but its impact has been exacerbated by the growing pile of unpaid government pending bills. According to data from the Controller of Budget, outstanding public pending bills stood at Sh465.87 billion as of March 2026, a 10.5 percent increment from Sh421.6 billion recorded in March 2025. This systemic payment delay has left local suppliers and contractors waiting between 30 to 90 days--and in many cases, significantly longer--for compensation, forcing them to take on expensive short-term debt to maintain daily operations.

In response to this crisis, alternative financiers are moving fast to plug the cash deficit. Faulu Microfinance Bank, backed by Old Mutual, has overhauled its trade finance portfolio to support small businesses heavily impacted by public tender delays and supply chain cash-flow constraints. The bank's mitigated credit strategy relies on partnering with reputable underwriters to share risk, shifting away from standard balance-sheet lending. By structuring credit directly around the trade cycle, Faulu offers customized financial instruments tailored to specific transaction phases.

While the National Treasury recently approved a Sh255 billion disbursement to chip away at the arrears, small businesses still require faster, more transparent settlements to scale. Economists warn that the persistent backlog is starving private enterprises of vital operating liquidity, and alternative financiers are stepping in to fill the gap. Julius Ouma, CEO of Faulu Microfinance Bank, notes that Kenya's 7.4 million MSMEs account for nearly 40 percent of the nation's gross domestic product (GDP), but they are routinely locked out of conventional tier-one banking credit lines due to a lack of standard fixed collateral.

Lawyers advising small businesses in Kenya should be aware of the growing trend towards structured trade finance as a means to survive the severe liquidity crunch caused by unpaid government pending bills, and advise clients on how to access these alternative financing options.

Source: Original reporting via Capital FM