Project finance in Kenya has been gaining significant traction, driven by the country’s economic growth and increasing demand for infrastructure and industrial development. This financing method allows sponsors to secure non-recourse funding for their projects, enabling them to mitigate risks and optimize their financial returns. Various financial institutions, including local banks like KCB Bank, international lenders, and multilateral development banks, offer project financing solutions tailored to meet the requirements of different sectors in Kenya.

1. Project Finance in Kenya
Project finance in Kenya has been gaining significant traction, driven by the country’s
economic growth and increasing demand for infrastructure and industrial development. This
financing method allows sponsors to secure non-recourse funding for their projects,
enabling them to mitigate risks and optimize their financial returns. Various financial
institutions, including local banks like KCB Bank, international lenders, and multilateral
development banks, offer project financing solutions tailored to meet the requirements of
different sectors in Kenya.
The regulatory framework governing project finance in Kenya is continually evolving to
create a conducive environment for investments. A comprehensive mix of legal and financial
aspects is involved in project financing transactions, making it crucial for stakeholders to
navigate these intricacies proficiently. Sectorial analysis and stakeholder engagement are
integral to the successful implementation of projects, as they allow investors to identify
sector-specific opportunities and risks and develop robust business solutions.
Key Takeaways
 Project finance in Kenya supports infrastructure and industrial development, with
various financial institutions providing tailored solutions.
 A dynamic regulatory framework and comprehensive legal and financial
considerations are essential components of project finance transactions in the
country.
 Thorough sectorial analysis and stakeholder engagement help investors identify
opportunities and risks, contributing to project success.
Overview of Project Finance

2. Fundamental Concepts of Project Finance
Project finance is a specialized form of financing, primarily used for financing large-scale
infrastructure and industrial projects. These ventures require substantial upfront capital and
long-term investment spanning over several years. A key characteristic of project finance is
the reliance on the project’s cash flow for repayment, with the project’s assets, rights, and
interests held as collateral. In this arrangement, lenders primarily focus on the viability and
risk profile of the project, rather than the creditworthiness of the project sponsors.
In Kenya, collateral and security interests for project financing are primarily divided into
movable property securities and immovable (real) property securities.
Historical Development in Kenya
Project finance in Kenya has been around for decades, but its growth has accelerated in
recent years due to rapid infrastructure development and a more mature financial market.
Throughout the years, project financing has enabled projects such as the Olkaria geothermal
plants, Thwake dam, and several renewable energy initiatives.
Key Drivers for Project Finance
Several factors have contributed to the growth of project finance in Kenya, including:
1. Government support: The Kenyan government has implemented policies and
regulatory frameworks to attract investment in infrastructure projects. These
efforts have included public-private partnership (PPP) frameworks and
concessions aimed at fostering collaboration between the public and private
sectors.
2. Growing demand for infrastructure: Kenya’s growing population and urbanization
have fueled the need for investments in infrastructure, such as roads, power
plants, water facilities, and telecommunications. The demand for these projects
has attracted local and international investors.
3. Development financing institutions: Kenya receives significant financial
support from development finance institutions like the World Bank and
the African Development Bank. These institutions enable large-scale projects by
providing financial and technical assistance.
4. Increasing renewable energy projects: Kenya has embraced renewable energy as
a critical component of its future energy mix and its commitment to global climate
change mitigation. This move has led to the development of several renewable
energy projects, such as wind farms, solar plants, and geothermal facilities.
Overall, project finance plays a vital role in Kenya’s infrastructure development, addressing
the country’s growing demand for basic services and creating a platform for economic
growth.
Regulatory Framework

3. Governing Laws and Regulations
In Kenya, the legal framework governing project finance transactions primarily includes
contract laws and regulations. All financing and project documents need to comply with the
laws and formalities of formation of contracts1. Additionally, sector-specific regulations,
such as those for mining and energy projects, need to be adhered to within the relevant
sectors.
In the energy sector, the Energy and Petroleum Regulatory Authority (EPRA) oversees
regulations. The role of EPRA includes licensing, tariff setting, and monitoring of compliance
with regulations2. For the mining sector, the Mining Act is a primary legislation governing
the conduct of mining projects in the country.
Role of Government Agencies
Various government agencies play essential roles in the project finance landscape in Kenya.
Some of these agencies include the National Construction Authority (NCA) and the National
Environment Management Authority (NEMA), among others.
The NCA is responsible for regulating the construction industry, ensuring that construction
projects adhere to established standards and that the projects are executed by certified
professionals3. On the other hand, NEMA is tasked with ensuring that project developers
comply with environmental impact assessments and audits4.
Compliance with Environmental Standards
In Kenya, it is critical for projects to adhere to the necessary environmental standards.
NEMA is the primary authority that monitors compliance with these standards. All project
financiers and developers are required to obtain an Environmental Impact Assessment (EIA)
license before commencing any activities5. Furthermore, they must regularly conduct
environmental audits to ensure ongoing compliance with environmental regulations.
As a summary, the regulatory framework around Kenyan project finance mandates strict
adherence to various laws and regulations, with several government agencies playing crucial
roles in overseeing the process. Compliance with environmental standards is not only
necessary but required by law, ensuring that projects align with sustainable development
goals.
Sectorial Analysis
Energy and Power Projects
Kenya’s energy sector has experienced significant growth in recent years. Renewable energy
sources such as geothermal, wind, and solar power have gained prominence while reducing
the country’s reliance on hydroelectricity. The Kenyan government’s commitment to
achieving universal electricity access by 2022 is driving further investment in the energy
sector. For example, the Lake Turkana Wind Power Project, expected to generate 310
megawatts of power, stands as the largest of its kind in Africa and a testament to the
remarkable progress in Kenya’s energy sector.

4. Transport and Infrastructure
Transport and infrastructure projects play a significant role in Kenya’s economic
development. The Standard Gauge Railway, a flagship project of Kenya Vision 2030, aims to
boost regional trade by linking Kenya’s seaports to the neighboring countries. Additionally,
the Nairobi-Mombasa Expressway project, financed through a public-private partnership,
demonstrates Kenya’s initiative to improve transport efficiency between major cities.
Furthermore, the Lamu Port-South Sudan-Ethiopia-Transport (LAPSSET) Corridor Program
involves the development of a network of transport and infrastructure connections,
including railways, highways, oil pipelines, and port facilities, to foster growth and regional
integration.
Mining and Natural Resources
Kenya’s mining sector has vast untapped potential in minerals such as gold, gemstones, and
industrial minerals, as well as oil and natural gas reserves. The government is encouraging
foreign investment through various incentives like tax breaks and streamlined licensing
procedures to propel this sector. The discovery of oil resources in the country’s northern
region provides further opportunities for exploration and production, with potential
benefits to the economy in the long term.
Real Estate and Construction
The construction and real estate industries have played a significant role in Kenya’s recent
economic growth. Demand for housing and commercial spaces has risen, driven by a
growing urban population and a rapidly expanding middle class. Additionally, large-scale
infrastructure projects have stimulated growth in the construction industry. The
government’s affordable housing scheme, which aims to construct 500,000 affordable
homes by 2023, remains a key driver for real estate development in Kenya.
Financial Aspects of Project Financing
Sources of Capital and Funding
In Kenya, project financing can be sourced from various capital and funding
sources including local and international banks, development finance institutions, and
private equity investors. Additionally, the government and non-profit organizations can also
contribute to project financing. These entities provide capital for various project stages, with
each stage featuring different risk levels and potential returns. Some financing instruments
utilized in Kenya for project funding are equity, mezzanine, and debt financing, while
guarantees and insurance are also used to mitigate risks in some cases 1.
Role of Financial Institutions
Financial institutions play a crucial role in project financing in Kenya. Both local and
international banks, such as the Kenya Commercial Bank, play an essential part in providing
financing solutions for projects. They offer various financial products and services, like loans,
guarantees, and letters of credit. Other important financial institutions involved in project
funding include development finance institutions, which provide funding for projects that

5. contribute to sustainable development goals. These institutions require projects to adhere
to strict environmental, social, and governance (ESG) criteria 6.
Risk Assessment and Management
Successful project financing relies on thorough risk assessment and management. Financial
institutions assess project risks, such as political, economic, legal, environmental, technical,
and market-related risks, before deciding whether to provide financing2. Risk assessment
typically involves evaluating factors such as the project’s feasibility, financial viability,
borrower’s creditworthiness, and the project’s ability to generate revenue. Financial
institutions may require various types of collateral or security interests, including both
movable and immovable properties, to secure their investment3.
Risk management strategies include ensuring projects have appropriate contractual
frameworks and insurance policies to protect against unforeseen events, such as force
majeure, construction risks, and operational issues. Financial institutions and project
sponsors also seek to mitigate risks through diversification and working with experienced
partners4.
In summary, the financial aspects of project financing in Kenya involve diverse capital
sources, the pivotal role of financial institutions, and effective risk assessment and
management strategies. While Kenya’s project finance landscape can be complex, these key
factors serve as a foundation to navigate and understand financial aspects of project
funding in the country.
Stakeholder Engagement
Public-Private Partnerships
In Kenya, public-private partnerships (PPPs) have become a vital component in the
development of infrastructure projects. The Kenyan government recognizes the importance
of private sector participation and has established a legal and regulatory framework to
promote PPPs. The Government of Kenya, county governments, and private companies all
play crucial roles in fostering successful public-private partnerships1. For example,
the Kenya COVID-19 Recovery Supporting Access to Finance and Enterprise Recovery
(SAFER) Project has a comprehensive Stakeholder Engagement Plan, outlining the
involvement of different stakeholders in the project planning and implementation process.
Private Sector Involvement
The private sector plays a significant role in project finance in Kenya. Private companies,
both local and international, bring in the necessary expertise, technology, and financing
needed for the implementation and success of various projects. Many projects in Kenya are
funded by a mix of public funds, private investment, and development finance institutions6.
Private sector involvement contributes to a more efficient allocation of resources, leading to
better infrastructure development and increased economic growth.
Community and Environmental Stakeholders
Engaging with community and environmental stakeholders is essential for successful project
implementation. Local communities and environmentalists can provide valuable input,
ensuring projects have a positive impact on the local environment and community, and

6. mitigating potential negative effects. To foster open and transparent communication, the
Kenyan government has enacted laws and policies promoting public participation2. One
such example is the Kenya SDGs multi-stakeholder engagement structure, which guides
effective collaboration among stakeholders for sustainable project development.
In project finance, special attention is given to Environmental and Social Impact
Assessments (ESIAs), which help identify, evaluate, and manage potential environmental
and social risks. In Kenya, ESIAs are conducted in accordance with the National
Environmental Management Authority (NEMA) guidelines, ensuring all relevant
stakeholders are involved in the decision-making process and their concerns are
addressed3.
Legal Considerations
Land Acquisition and Charges
In Kenya, the legal framework for land acquisition and charges is well-established. For
leasehold properties, the consent of the Commissioner of Lands is required before a charge
can be created2. It is crucial to consider the payment of stamp duty and registration fees
when creating a charge over land. Stamp duty is currently set at 0.1% of the amount
borrowed, and the official registration fee is 1,000 Kenyan shillings ($10) 3.
Securing the Project’s Assets
Securing a project’s assets involves obtaining relevant licenses, permits, and approvals from
appropriate authorities. These may include liens, mortgages, and other legal mechanisms
that enforce the rights of the project’s financiers. In Kenya, project assets are typically
secured using a combination of these tools to ensure that investors’ interests are protected.
Contractual Obligations and Dispute Resolution
The Kenyan legal system emphasizes the importance of contractual obligations, and it is
essential to ensure that all contracts are watertight and enforceable. This includes
appropriately drafted agreements, clear definitions of roles and responsibilities, and
provisions for dispute resolution1.
In case of disputes, the Kenyan legal framework allows for the use of arbitration, which is
cost-effective and time-efficient compared to traditional litigation. The parties may choose
an arbitration tribunal in accordance with the rules agreed upon in their contracts.
Arbitration in Kenya is regulated by the Arbitration Act, which adopts the UNCITRAL Model
Law on International Commercial Arbitration6. This makes arbitration a reliable and
internationally recognized method for resolving disputes in project finance ventures.
Collateral and Security Arrangements
Mortgages and Charges
In Kenya, project finance often involves collateral in the form of mortgages and charges. A
mortgage is a type of security interest in immovable property, while a charge can be used
for both movable and immovable property. The chargor (borrower) grants
the chargee (lender) the right to the asset as security for a loan. A charge is created through

7. a security agreement and usually registered with the relevant authorities. Unlike mortgages,
charges do not involve the transfer of ownership of the asset1.
Movable and Immovable Securities
Kenyan law recognizes two main categories of collateral: movable property securities and
immovable (real) property securities. Immovable property usually refers to real estate, such
as land and buildings, secured by mortgages. Movable property includes tangible goods,
such as vehicles and equipment, and intangible assets like intellectual property and
receivables. Movable property securities in Kenya are regulated by the Movable Property
Security Rights Act6.
Various types of security arrangements can be created for movable assets, such as:
 Pledge: The borrower transfers possession of the asset to the lender as security
for a loan.
 Lien: The lender retains possession of the asset until the debt is fully paid.
 Debenture: A type of debt instrument, usually a loan or bond that is secured by a
charge on the borrower’s assets.
Special Purpose Vehicles and Structured Financing
In project finance, a Special Purpose Vehicle (SPV) is often established to isolate risks and
protect the project assets. An SPV is a separate legal entity created for a specific purpose,
such as owning the project assets, signing contracts, and raising debt2. Structured financing
arrangements are used to optimize the project’s risk allocation, align stakeholders’ interests,
and raise funds efficiently.
TYPE OF ENTITY UTILITY IN PROJECT FINANCE
Movable Assets Used as collateral
Debenture Debt instrument secured by charge
Movable Property Security Rights Act Governing legislation for movable property securities
Liens Security arrangement retaining possession of asset
Mortgages Security interest in immovable property
Security Agreement Agreement creating a charge
Collateral Security Packages Bundled collateral for project financing

8. TYPE OF ENTITY UTILITY IN PROJECT FINANCE
Movable and Immovable Property Types of collateral
Chargee and Chargor Lender and borrower in security arrangement
Pledge Transfer of possession for security
Special Purpose Vehicles (SPVs) Separate legal entity for project finance
Structured Financing Optimized risk allocation and financing
Case Studies and Analysis
Successful Project Finance Models
In Kenya, several large-scale renewable energy projects have been successfully financed
using project finance models. One such example is the Lake Turkana Wind Power Project,
which is among the largest wind energy projects in Africa. By leveraging private participation
and international funding, the project managed to achieve financial closure and become
operational.
Another success story comes from the geothermal sector, where the Olkaria Geothermal
Expansion Project has seen the involvement of both the government and private investors.
Public-private partnerships (PPPs) and the utilization of multilateral development bank
funding have played a crucial role in securing the necessary financing for these projects.
Challenges and Lessons Learned
While there are successful cases of project financing in Kenya, there have been challenges
too. The One Acre Fund projects faced several challenges, including:
1. Project leadership: Ensuring effective leadership on projects was essential for
their success. Weak leadership and poor decision-making negatively impacted
project performance.
2. Project financing: Securing adequate financing with reasonable terms and
conditions proved to be a constraint. Delays in funding disbursement affected
project implementation and completion.
3. Monitoring and evaluation: A lack of proper monitoring and evaluation systems
hindered project progress and limited learning opportunities for future projects.
4. Beneficiary involvement: Inadequate involvement of project beneficiaries
resulted in low adoption rates and reduced project impact.
These challenges highlight the importance of addressing leadership, financing, monitoring
and evaluation, and stakeholder engagement when undertaking projects in Kenya.

9. Emerging Trends in Kenyan Markets
Several emerging trends are shaping the project finance landscape in Kenya. These include:
 Increased focus on climate change adaptation: In recent years, climate change
adaptation projects such as Kenya’s Climate Change Adaptation Finance
Strategy have gained traction and attracted funding.
 Emphasis on financial literacy and training: Initiatives like the Feed the Future
Kenya Access to Finance in Northern Kenya project are prioritizing financial
literacy and training for micro, small and medium-sized enterprises (MSMEs) and
smallholder farmers, to create more informed borrowers.
 Rising interest in infrastructure development: The Kenyan government is actively
pushing for increased private-sector participation in infrastructure projects
through regulatory reforms and promoting PPP models.
These emerging trends reflect the changing priorities and focus of the Kenyan market,
offering new opportunities for project finance in various sectors, including energy,
infrastructure, and agriculture.
Frequently Asked Questions
What types of project financing options are available for infrastructure development in
Kenya?
In Kenya, project financing options for infrastructure development include debt financing,
equity financing, and public-private partnerships (PPPs). Debt financing is typically offered
by commercial banks, such as KCB Bank, and development finance institutions. Equity
financing can be obtained from private equity firms, infrastructure-focused funds, and
strategic investors. Additionally, PPPs facilitate collaboration between the public and private
sectors to finance, develop, and maintain infrastructure projects.
How does property financing work for real estate ventures in Kenya?
Property financing in Kenya involves obtaining a loan for the acquisition, development, or
improvement of real estate properties. Real estate ventures can secure loans from
commercial banks, savings and credit cooperatives (SACCOs), and non-bank financial
institutions. Property loans typically require collateral in the form of the real estate property
itself or other assets. The borrower is generally required to make a down payment, and the
loan repayment period may range from a few years to several decades.
What are the requirements to secure machinery financing for agricultural projects in
Kenya?
To secure machinery financing for agricultural projects in Kenya, borrowers typically need to
provide proof of their creditworthiness, a detailed business plan, collateral (which can be
the machinery itself), and a down payment. Some financial institutions may offer specialized
agricultural loan products, with tailored requirements and conditions. Additionally,
government support programs and grants for agricultural development may be available to
help farmers in obtaining machinery financing.

10. Which banks in Kenya offer the most competitive bank guarantee charges for businesses?
Bank guarantee charges for businesses in Kenya depend on the specific bank and the terms
of the guarantee. Charges can include an initial fee, a renewal fee, and a percentage of the
guarantee amount. To get the most competitive rates, businesses should shop around and
compare offers from various banks such as KCB Bank Kenya Ltd, Equity Bank, and Barclays
Bank of Kenya.
What affordable housing loan schemes are currently being offered in Kenya?
Several affordable housing loan schemes are being offered in Kenya, aimed at promoting
homeownership for lower- and middle-income households. These schemes include the
Mortgage Refinance Company (KMRC) initiative, which provides low-cost, long-term
financing to banks and SACCOs, enabling them to offer more affordable mortgages to
homebuyers. Additionally, some financial institutions have partnered with government
agencies and development partners to design and implement affordable housing projects
that benefit from concessional financing terms or subsidized interest rates.
In the context of African economies, what are the key features of effective project finance
models?
Effective project finance models in African economies share several key features:
1. Clear legal and regulatory frameworks: A well-defined legal environment that
supports the enforceability of contracts and the protection of property rights is
crucial for attracting investment. Kenya’s project finance laws contribute to its
attractiveness as a destination for investment.
2. Risk mitigation: Mechanisms for mitigating risks, such as guarantees and credit
enhancements, can help reassure investors and facilitate financing.
3. Local and foreign investment partnerships: Engaging both local and international
investors helps to diversify the funding sources and broadens the pool of
expertise available for project execution.
4. Strong government support: Government involvement in project structuring and
approval processes can help build investor confidence and streamline
implementation.
5. Environmental and social impact management: Projects should adhere to
environmental, social, and governance (ESG) standards. Ensuring the positive
impact of projects on local communities and the environment can lead to greater
sustainability and social acceptance.