Regional Focus

Doing business in Kenya

Published: Nov 2010

Kenya’s capital, Nairobi, is generally considered to be the financial services hub of Central and East Africa. The country is a key member of the East African Community (EAC), alongside Uganda, Tanzania, Rwanda and Burundi. The aim of the EAC is to enhance co-operation between the member states in political, economic and social terms, for the benefit of all. This initiative has led to the establishment of a Customs Union in 2005, a Common Market in 2010 and will see the inauguration of a Monetary Union by 2012.

Map and flag of Kenya

Key facts

Geography and society

Population growth rate:
Official languages:
Swahili and English
Capital city:
Time zone:
Land boundaries:
Ethiopia 861 km, Somalia 682 km, Sudan 232 km, Tanzania 769 km, Uganda 933 km
Kenyan shilling
GDP per capita:
Member of:
Fiscal year:
calendar year
Financial capital:
History and politics
Government type:
Mwai Kibaki
12th December 1963
Country credit rating
  • B+/B
Trading partners
Top five import sources:
Add, China, UAE, South Africa, Saudi Arabia
Top five export destinations:
UK, Netherlands, Uganda, Tanzania, US

Africa’s financial hub

Kenya welcomes foreign investment, with a series of reforms having opened up the market and simplified the process. The Nairobi Stock Exchange (NSE) is Africa’s fourth largest in terms of market capitalisation. The service sector, dominated by tourism, is the largest contributor to Kenya’s GDP, followed by agriculture. The country’s key agricultural exports include tea, coffee and flowers.

2009 saw asset growth of 14% in Kenya’s banking industry, as a result of measures put in place by the Central Bank of Kenya in response to the global banking crisis. These measures included the Agent Banking Law, which allowed banks to authorise independent businesses to offer banking services on their behalf; and the creation of Credit Reference Bureaux, which allowed for the circulation of customer information amongst the country’s lenders, in order to prevent further bad loans.

Kenya’s financial sector is embracing new technologies, and was one of the first to test mobile payments, via M-PESA.

Photograph of an elephant
  • The Central Bank of Kenya (CBK) was established in 1966 under the Central Bank of Kenya Act. The three core functions of the Bank are: to formulate and implement monetary policy with the aim of maintaining stability in prices; to adopt the liquidity, solvency and proper functioning of a stable, market-based financial system; and to support the economic policy of the government.
  • Maintaining low and stable inflation is the chief goal of the Monetary Policy Committee (MPC). Monetary policy in Kenya may be implemented in three different ways: by buying and selling securities in the open market; by altering the discount rate to encourage banks to seek funding in the market, and only turn to the CBK as a lender of last resort; and by adjusting the minimum reserve requirement level for commercial banks.
  • The CBK regulates commercial banks, non-bank financial institutions, mortgage finance companies, building societies, foreign exchange bureaux, deposit-taking microfinance institutions and credit reference bureaus.
  • There are no foreign exchange controls; however a bank must report significant foreign exchange transactions (ie in excess of $10,000) to the Central Bank.
  • IFRS accounting principles are adhered to. Financial statements must be prepared annually.
  • Permitted business entities include public/private limited liability companies, companies limited by guarantee, sole proprietorships, partnerships, co-operative societies and branches of foreign or local companies.
  • Kenya’s Proceeds of Crime and Anti-Money Laundering Act became effective in June 2010, and seeks to establish a Financial Reporting Centre (FRC) and Assets Recovery Agency. Under this new legislation, anyone found guilty of money laundering could face up to seven years imprisonment, and/or a fine of up to 2.5m shillings.

Taxation framework

  • A company is considered resident for tax purposes if it is incorporated under Kenyan law, if its affairs are managed in Kenya or if the Minister of Finance publishes a notice declaring the company to be tax resident in the Kenya Gazette.
  • All resident and non-resident entities are subject to tax on all income accruing in or derived from Kenya. Only expenses incurred exclusively in the generation of income are deductible for tax purposes.
  • Capital gains legislation was suspended in 1985, and there is no capital gains tax in Kenya.
  • The general rate of corporate income tax is 30%, with foreign company branches paying a rate of 37.5%. Newly-listed companies benefit from a reduced rate of 20-27% for the first three to five years, depending on the percentage of capital listed.
  • A 100% investment deduction is applicable on hotel buildings and buildings and machinery used in manufacturing. For manufacturing investment in buildings and machinery located in the towns immediately surrounding Nairobi, Mombasa and Kisumu, an investment deduction of 150% applies. Any companies located in Export Processing Zones have the benefit of a ten-year tax holiday.
  • Withholding tax is not imposed on dividends to qualifying Kenyan financial institutions, or where the resident recipient company owns more than 12.5% of the capital of the originator. In all other cases, a rate of 5% applies to residents and citizens of the East African Community, and 10% to non-residents. A lower rate of withholding tax may apply where a tax treaty is in force. Kenya currently has treaties with the UK, Germany, Norway, Sweden, Denmark, Canada, India and Zambia.
  • Cityscape of Nairobi
  • The Kenyan law on transfer pricing requires transactions between related entities to be carried out at arm’s length, in accordance with OECD guidelines.
  • Thin capitalisation rules state that for controlled foreign companies (CFCs) where the controlling stake is at least 25% or more, interest expenses may be reduced when the CFC’s interest-bearing liabilities are more than three times the level of paid-up capital and revenue reserves/accumulated losses.
  • The standard rate of VAT is 16%. VAT is not charged on certain goods and services, in such industries as agriculture, health and education, computer hardware and software, international air travel and oil exploration.
  • Stamp duty is charged on certain transactions and financial instruments. For example, the creation and increase of authorised share capital attracts a stamp duty at a rate of 1%; 4% stamp duty is charged on immovable property; and 1% on the transfer of shares and securities. Any shares or securities listed on the Nairobi Stock Exchange (NSE) are exempt from stamp duty.

Case Study

Bamburi Cement

Bamburi is part of the French building materials giant Lafarge and is the largest cement-manufacturing company in east and central Africa.

The challenge

The objective of the programme was to assure continuous supplies to Bamburi by providing working capital support to Bamburi’s key suppliers. The programme also aimed to optimise Bamburi’s working capital cycle (by stretching the payment period from 15 days for some of the suppliers to 30 days) without increasing cost to its supply chain, and to improve relationships with its suppliers.

Bamburi had a tightly controlled supply chain designed to reduce borrowing costs. It continued to pay its suppliers and logistic partners on the invoice due date and tried to match its payments to its logistic partners and suppliers with receipts from customers in an effort to optimise working capital and reduce borrowing costs. As a result, payments to suppliers would only be made on the due date and on occasion get delayed. Suppliers had to finance their operations with bank borrowing at high costs, given their relatively small size and limited collateral, causing financial distress and high costs.

Ultimately, the suppliers’ additional cost of borrowing (due to increased days outstanding) led to them repricing their services to Bamburi.

The solution

Citi proposed a supplier finance solution – the first of its kind in East Africa. Under the programme, it paid Bamburi’s suppliers on the due date of their invoices by drawing on Bamburi’s credit facilities. While the interest cost was passed onto suppliers, the financing cost was lower due to the substitution of the suppliers’ credit risk for that of Bamburi’s. The solution therefore enhanced suppliers’ loyalty to Bamburi. Citi has committed to providing timely and efficient service to ensure the success of the programme. Payment instructions received before 12 noon will be processed on a same-day basis; instructions received afternoon, on a next-day basis.

By supporting its suppliers, Bamburi was able to demand better payment terms and improve the efficiency of its working capital. Bamburi also benefited from improved cash flow; its days payables were effectively increased because the final liquidation of the supplier finance loans were an average 30 days after the due date of invoices.

The benefit of the increased days payables allowed Bamburi to extend enhanced credit terms to its distributors, giving it a competitive advantage.

The result

Citi began a pilot implementation of the supplier finance solution with one supplier in August 2008, after working extensively with it to identify and eliminate potential implementation problems. Following due diligence, a further 14 suppliers were added to Bamburi’s supplier finance programme. Bamburi estimates an opportunity for cost savings of over $200,000 a year, and it is considering expanding the programme to its subsidiary in Uganda.

Treasury activities

Local banking sector

  • There are 43 commercial banks in Kenya, of which 13 are foreign. The government has significant shareholdings in three local Kenyan banks. The biggest bank in terms of assets is Kenya Commercial Bank, with 226.15 billion shillings ($2.8 billion) in June 2010.
  • Banking in Kenya is governed by the Banking Act, the Companies Act and the Central Bank of Kenya Act.
  • Kenya’s Microfinance Institutions (MFIs) provide financial services, such as credit, savings, insurance and money transfer services, to small and micro enterprises (SMEs) who do not qualify for access to traditional financial institutions. Deposit-taking MFIs are regulated by the Central Bank and are permitted to lend public funds; non-deposit-taking MFIs are only permitted to lend their own funds.


  • Cash.
  • Cards.

    Card payment services have traditionally been provided independently; however, these are set to be centralised with the launch of a wireless platform by Paystream that will provide a single, central transaction interface for card payments.

  • Cheques.

    The cheque payment process is undergoing improvements, with the cheque scanning introduced in the summer of 2010. This enables a digital image of the cheque to be forwarded electronically for clearing, thus simplifying the process and improving efficiency.

  • Electronic Funds Transfer (EFT).

    This is becoming increasingly popular, particularly for the payment of dividends which have traditionally been paid by cheque. Transactions are cleared once a day on a deferred net settlement (DNS) basis.

  • Mobile payments.

    Kenya was one of the first countries to use mobile phones for cash transfers, through a service called M-PESA, developed by Safaricom Ltd. Users of M-PESA do not require bank accounts; instead they must register at an authorised M-PESA agent. Once registered, users can buy digital funds at any M-PESA agent and send that electronic cash to any other mobile phone user in Kenya by SMS. An M-PESA-enabled mobile phone can also function as an electronic purse, holding up to 50,000 Kenyan shillings (€500).

Clearing and settlement

In July 2005 Kenya launched its first real-time gross settlement system (RTGS) for urgent, high-value payments – the Kenya Electronic Payments and Settlement System (KEPSS). The system is operated and owned by the Central Bank of Kenya, and all commercial banks within the country are participants. Messages are primarily carried via the SWIFT network. Foreign currency transactions may be processed in US dollar, euro and pounds sterling, with more currencies to be available when the East Africa Cross-Border Payment System (EAPS) is implemented.

Investment opportunities

  • Treasury bills.

    A Treasury bill is a paperless, short-term government security issued through the Central Bank of Kenya. These are available in maturities of 91, 182 and 364 days and are sold at a discounted price (to reflect investor’s return) and redeemed at face value.

  • Treasury bonds.

    Treasury bonds are medium to long-term debt instruments issued by the government. They are available in maturities ranging from one to 25 years. A number of different types are available:

    • Fixed coupon bonds.

      These are one of the most popular forms.

    • Zero coupon bonds.

      Alongside fixed-coupon bonds, these are the most popular.

    • Floating-rate bonds.

      These are no longer issued by the government, only by corporates.

    • Infrastructure bonds.

      These are used to fund specific infrastructure-related projects.

  • Stock market.

    The Nairobi Stock Exchange (NSE) is the fourth-largest in Africa and trades equities and bonds. Live trading on automated trading systems has been possible since 2006.

Key websites

Central Bank of Kenya:
Ministry of Finance:
East African Community:
Nairobi Stock Exchange:
Kenya Investment Authority:

Citi in Kenya

Citi began operating in Kenya in 1974 under the name “The First National City Bank of New York” and has since evolved to be known today as Citibank N.A. Kenya Branch (“Citi Kenya”). We have branches in Nairobi (Head Office) and Mombasa. Citi provides the full range of commercial banking transactions ranging from local and foreign currency advances, up-country collections, trade finance, foreign exchange, corporate finance, advisory, investment banking services and cash management. Citi has an East Africa Regional Business present in Kenya, Uganda, Tanzania and Zambia.

Citi is recognised in East Africa as international leader in end-to-end on-line financial services that provides state-of-the-art cash management and trade services, as endorsed by corporations who have voted Citi as the Lead Domestic Cash Management Bank in 2010 in the Euromoney Cash Management poll. In Kenya alone, Citi has been at the forefront of electronic banking solutions with the latest technology of internet-based banking solutions since 2000. Understanding the changing needs of our customers continues to be a strategic priority at Citi to provide innovative customer-centric solutions. We partner with our customers to help them transform their business and employ the latest technologies, which allow them to reach beyond traditional markets.

Other achievements

  • Pioneer of web-based Electronic Banking in Kenya in 2000.
  • First bank to be ISO 9001 2000 certified in Kenya.
  • KIM Awards – “Best Bank in Kenya”. HR & Technology, Professional Manager of the Year.
  • Euromoney Awards – Best Domestic Cash Management Bank in Kenya 2008, 2009 and 2010.
Contact details:
Joyce Ann Wainaina
Global Transaction Services Head East Africa
+254 (20) 2754069
Mary Sabwa
Sales Head East Africa
+254 (20) 2754068

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