The dust has barely settled on the Central Bank of Kenya’s (CBK) latest monetary policy move, yet the debate it stirs is far from over. On October 7, 2025, the Monetary Policy Committee cut the Central Bank Rate by 25 basis points to 9.25%, the eighth consecutive reduction since August 2024, when the rate stood at 13%. The cumulative intent is unmistakable: to stimulate private-sector lending, spur investment, and reignite growth. But the question that hangs heavy is whether cheaper money alone can reverse the economy’s credit fatigue.

The data suggests otherwise. Despite successive cuts, private-sector credit contracted by 1.4% in the final quarter of 2024, while public-sector borrowing rose to 34% of total credit, up from 30% four years ago. Non-performing loans now hover at 17.2%, a sign of distress across key engines of growth: trade, construction, and personal lending. The numbers reveal a structural malaise that cannot be cured entirely by rate cuts; one that goes deeper into how risk, capital, and trust interact in the country’s financial system.

Banks, faced with tight margins and uncertainty, continue to park funds in government securities that promise predictable yields and near-zero default risk. The logic is rational, but the outcome is distortionary: liquidity is high, yet productive lending is low. Each oversubscribed bond auction reflects a silent trade-off between safety and stimulus, between fiscal convenience and economic ambition. As public borrowing expands, it crowds out private credit, leaving micro and small enterprises gasping for capital.

The ripple effects are visible across the real economy. Job creation fell to its weakest level in four years, while GDP growth slowed to 4.7% in 2024, the lowest since the pandemic recovery phase. For an economy whose growth model rests on private enterprise, this is more than a cyclical dip; it is a warning that Kenya’s credit architecture is misaligned with its development priorities.

The lesson is not new. Monetary easing is necessary but never sufficient. Sri Lanka’s 2024 recovery offers a compelling case study. Facing credit stagnation and fiscal strain, Colombo went beyond rate cuts, digitising its collateral registry, streamlining credit scoring, and reforming insolvency procedures. Within a year, private-sector credit rebounded as government borrowing declined. The outcome reaffirmed a critical truth: macro policy works only when underpinned by structural modernisation.

We need a similar recalibration locally. The government’s fiscal consolidation drive must go beyond deficit reduction to address the composition of borrowing itself. Domestic debt, though convenient, is choking private-sector access to capital. The Treasury must therefore exercise discipline in every bond issuance, redirecting fiscal appetite towards external concessional sources where possible. Creating space for private-sector credit requires deliberate trade-offs, not just rhetoric about prudence but demonstrable restraint.

Beyond the fiscal frontier lies the question of risk. Lower rates mean little if lenders still perceive entire sectors as too risky to touch. This is where credit guarantee schemes become indispensable. Properly designed, they can unlock billions in stalled credit by redistributing default risk between lenders and the state. Kenya’s own credit guarantee framework, though a step in the right direction, remains narrow and undercapitalised. It should be scaled up, diversified by sector, and supported by performance-based oversight to ensure impact in high-growth areas such as agriculture, renewable energy, and the digital economy.

Equally urgent is the modernisation of Kenya’s legal and institutional infrastructure. The Movable Property Security Rights Act of 2017, designed to make non-tangible assets acceptable as collateral, remains underutilised. Most lenders still cling to immovable property, excluding the very innovators who lack title deeds but possess viable business models. A functional, digitised collateral registry would transform this equation, opening the credit window to entrepreneurs who trade in ideas, inventory, or equipment rather than land.

The Insolvency Act, another critical pillar, suffers from slow enforcement and procedural gridlock. Cases linger in courtrooms for years, discouraging lenders from extending credit beyond the most secure clients. A predictable, time-bound insolvency process would not only reduce risk but also restore confidence in Kenya’s financial rule of law.

Yet, even with the right laws and guarantees, credit expansion will falter if public trust remains fractured. The ghosts of punitive lending, opaque pricing, and aggressive recoveries haunt Kenya’s relationship with credit. Many borrowers still view formal credit with suspicion, equating it with financial ruin. Rebuilding that trust demands a new social contract anchored in transparency, accountability, and financial literacy. Borrowers must see credit not as a trap but as a tool for transformation, one governed by fairness and mutual responsibility.

Technology offers part of the solution. Digital underwriting, AI-driven risk scoring, and data-sharing frameworks can make lending more precise and inclusive. However, technology must serve policy, not replace it. Algorithms cannot compensate for structural inertia or institutional opacity. Fundamental transformation will come only when innovation aligns with reform, when policy coherence, fiscal restraint, and digital tools converge toward a common goal.

There are glimmers of hope. In February 2025, private-sector credit ticked up by 0.2%, a modest increase, but the first positive signal in the current easing cycle. It is proof that when monetary signals begin to align with structural change, movement follows. The challenge now is to turn momentum into stability, and stability into confidence.

Kenya’s credit market does not necessarily need rate cuts but a holistic reset.  A system that rewards productive risk-taking, enforces discipline, and restores faith in enterprise. The CBK can guide, but the heavy lifting must come from fiscal authorities, legislators, and market actors willing to reimagine the architecture of credit. If we succeed in aligning structure with strategy, policy with purpose, and capital with creativity, the next rate cut might not just lower costs; we might finally unlock growth.