By Benson Nyangweso
Kenya has just recorded its highest-ever annual haul of foreign direct investment, a milestone that landed within a day of President William Ruto signing the country’s first Sovereign Wealth Fund into law. Yet even as the government trumpets a decade of growing investor confidence, governance experts and industry watchers are asking whether the banking sector that will channel much of this capital has done enough to close the gaps that have allowed insider fraud, non-performing loans and compliance lapses to persist for years.
According to the United Nations Conference on Trade and Development’s World Investment Report 2026, Kenya attracted USD 3.2 billion, roughly KSh414 billion, in foreign direct investment in 2025, a 37.7 per cent jump from the previous year and the highest inflow ever recorded for the country. UNCTAD attributed the surge to policy reforms, including reduced corporate tax rates and dividend exemptions for firms accredited under the Nairobi International Financial Centre, alongside growing investor appetite for Kenya’s digital infrastructure, clean energy capacity and regulatory sandboxes in the ICT sector.
President Ruto welcomed the figures as proof that Kenya is “building an economy the world believes in.” The timing was notable: on 8th July, just a day after the UNCTAD figures were confirmed, the President signed the Sovereign Wealth Fund Bill, 2026 into law at State House, creating the Urithi Fund alongside a Stabilisation Fund and a Strategic Investment Window. Under the new law, a share of revenues from petroleum and mineral extraction, beginning with output from the Lokichar oil fields in Turkana, will be ring-fenced for future generations, with the Act providing for independent professional management, parliamentary oversight and mandatory public reporting.
The contrast has not been lost on economists and governance analysts. If the state can legislate for transparency and audited stewardship of resource wealth for citizens not yet born, they argue, similar rigour ought to apply to the commercial banks handling the deposits and investment flows of citizens alive today.
Kenya’s banking industry has faced periodic governance crises for over a decade, several of which involved the very institutions now positioned to benefit from the investment boom. The clearest illustration remains the National Youth Service scandal, in which the Office of the Director of Public Prosecutions found that Kenya Commercial Bank, Equity Bank, Co-operative Bank, Standard Chartered Bank, Diamond Trust Bank and Family Bank had each violated the Proceeds of Crime and Anti-Money Laundering Act by failing to flag suspicious transactions tied to the roughly Sh10.5 billion scheme.
The banks reached deferred prosecution agreements with the DPP rather than face full criminal trial; none were found to have participated directly in the underlying theft, but each was penalised for lapses in due diligence. KCB paid the largest settlement, at Sh149.5 million, while Family Bank paid Sh64.5 million after nine of its senior managers were forced out by the Central Bank of Kenya, and Co-operative Bank paid the smallest fine, at Sh20 million.
That episode is not merely historical. The National Youth Service is once again under scrutiny, with the Ethics and Anti-Corruption Commission pursuing a fresh case involving an alleged Sh6.2 billion in ghost supplies procured through forged invoices between 2013 and 2016, and an anti-corruption court has kept related payments frozen pending further evidence. No new charges have yet been brought against any bank in connection with this case, and the allegations against the named suppliers remain unproven.
More broadly, insider lending has been a recurring theme in Kenya’s bank failures. Chase Bank, Imperial Bank and Dubai Bank all collapsed in the mid-2010s after regulators uncovered irregular lending to directors and related parties, amounting to billions of shillings. A 2025 review by the law firm Cliffe Dekker Hofmeyr noted that although the Central Bank of Kenya’s prudential guidelines cap insider lending at 20 per cent of a bank’s core capital, enforcement has “historically been weaker” than in comparable jurisdictions such as Nigeria, where regulators now require directors with unpaid insider loans to resign.
Current data suggests the underlying pressures have not eased. Central Bank of Kenya figures published in its Monetary Policy Committee statement put the industry-wide non-performing loan ratio at 15.6 per cent as of March 2026, down from a peak of 17.6 per cent in August 2025 but still well above what regulators consider a healthy threshold. KCB, Kenya’s largest bank by assets, reported a gross NPL ratio of 19.9 per cent, equivalent to roughly one in five loans in distress, with gross non-performing loans reaching KSh233.3 billion. Equity Bank, the country’s second-largest lender, saw its non-performing loans rise 16.2 per cent year-on-year to KSh139.4 billion over the same period. Analysts attribute much of the deterioration to delayed government payments to contractors and suppliers, which have in turn strained borrowers’ ability to service loans, rather than to fraud specifically.
Separately, the CBK’s Financial Sector Stability Report recorded a sharp rise in fraud losses across the sector, with reported cases more than doubling from 153 to 353 and losses climbing 264 per cent to KSh1.5 billion in a single year, driven largely by cyber-enabled schemes rather than traditional insider fraud. The regulator described the trend as a direct consequence of rapid digitisation of payments, underscoring that oversight has struggled to keep pace with the sophistication of both external and internal threats.
The sector’s own lobby, the Kenya Bankers Association, has meanwhile focused its energy on resisting new tax measures rather than internal reform. Under Clause 31 of the Finance Bill, 2026, Treasury proposed extending 16 per cent VAT to fees charged on digital payment platforms, a move KBA chief executive Raimond Molenje warned would push transaction costs as high as 58.4 per cent once stacked with existing excise duties, driving consumers back to cash and undermining the very financial inclusion gains banks often cite as evidence of their public value. The VAT measure ultimately took effect on 1st July 2026 as part of the enacted Finance Act, despite the joint lobbying campaign mounted by KBA and the Kenya Private Sector Alliance.
Critics note the asymmetry: an industry quick to mobilise against measures that squeeze its transaction revenue has been comparatively slower and quieter in pressing for stronger enforcement of insider-lending limits, faster resolution of non-performing loans, or full public disclosure of internal fraud cases.
None of this suggests that Kenya’s major banks are currently implicated in fraud on the scale of the last decade’s collapses; KCB, Equity, Family Bank and their peers have each pointed to strengthened anti-money laundering systems, tighter know-your-customer protocols and improved capital buffers, the latter reflected in a sector-wide capital adequacy ratio of 19.6 per cent as of the CBK’s most recent full-year review. But the historical pattern, combined with persistently elevated bad-loan ratios and rising fraud losses, is enough to keep governance advocates uneasy.
As Kenya positions itself to absorb record foreign capital and manage a new sovereign wealth fund built around explicit transparency guarantees, the question increasingly being asked in policy circles is whether the banking sector, still the primary conduit for that capital, will be held to the same standard.
