Kenyan traders and manufacturers will have access to longer-term dollar loans at more predictable costs under a new $100 million (Sh12.97 billion) funding programme by the European Bank for Reconstruction and Development (EBRD).
The EBRD is a multilateral lender owned by 77 countries, alongside the European Union and the European Investment Bank. It supports private-sector businesses across 40 economies.
The newly launched programme is being executed by Co-operative Bank of Kenya (Co-op Bank), which has drawn the first $50 million (Sh6.49bn) tranche of the $100 million facility.
Under the arrangement, the EBRD provides dollars and receives shillings in return, a structure known as a cross-currency swap. Co-op Bank can then lend those dollars to its customers without having to buy them in the open market.
The transaction is the first of its kind arranged by the EBRD for any Kenyan bank and the first in the country to use the Kenya Shilling Overnight Interbank Average (KESONIA), Kenya's new benchmark reference rate.
Kenyan lenders have been tapping global lenders such as the EBRD and the International Finance Corporation (IFC) among others, for longer-term financing in recent years, but this is the first known dollar-denominated deal with the EBRD for a tier-one lender.
The deal directly addresses Kenya's persistent trade finance gap, a constraint that has kept thousands of traders and manufacturers locked out of international markets despite growing demand for Kenyan goods.
Limited access to affordable trade finance continues to lock out farmers, cooperatives and micro, small and medium enterprises from lucrative export markets, according to industry data.
"This is an important milestone for Kenya's financial markets," said Abdessamad Abouti, the EBRD's Regional Head of Local-Currency Portfolio Management, in a statement.
"We have worked closely with local authorities and market participants to support the development of KESONIA, and this swap shows how reforms can move from design to implementation."
Co-op Bank Group managing director and CEO Dr Gideon Muriuki said the partnership was central to the lender's push into supporting dollar lending for Kenyan businesses.
"Our partnership with the EBRD under this $100 million currency swap programme represents an important milestone in our commitment to supporting Kenyan businesses with innovative financing solutions," he said.
"The first $50 million tranche enhances our ability to provide long-term, competitively priced foreign currency financing to help businesses strengthen their competitiveness while contributing to Kenya's economic development and job creation."
The MSME sector, which contributes approximately 34 per cent of GDP and employs over 15 million people, remains significantly underserved by formal finance.
Kenyan traders have faced hurdles including rules of origin, customs delays, and limited access to trade finance, challenges that have kept intra-African trade stubbornly low at around 15 per cent of total African commerce, compared to nearly 70 per cent in Europe.
The government has been actively inking deals to allow traders to trade with other countries under regional pacts such as the African Continental Free Trade Area (AfCFTA).
Kenya and Ethiopia have for instance signed a Simplified Trade Border Regime agreement to streamline trading procedures and boost cross-border trade for small-scale traders, simplifying customs formalities and reducing paperwork.
The ministers highlighted cross-border trade as foundational to implementing AfCFTA.
But even as these frameworks open new markets, the financing gap has remained a critical constraint.
Access to finance remains one of the greatest constraints facing farmers, cooperatives and MSMEs, according to the Kenya National Chamber of Commerce and Industry.
The EBRD facility is designed to change that arithmetic.
The deal matters to importers and exporters because the dollars are committed for a defined period at a defined price.
Co-op Bank can therefore write dollar loans with longer tenors and more predictable pricing than the market has typically offered, rather than borrowing short and refinancing repeatedly.
The practical effect is access to foreign exchange for inputs that have no local substitute such as spare parts, specialised equipment, industrial chemicals, packaging lines, refrigerated trucks and the imported components that sit inside most Kenyan manufactured goods.
"Previously, banks didn't generate forex," a person familiar with the structure said. "Trade is not a dependable market to generate adequate forex to lend."
Kenyan banks have historically found it hard to build a reliable dollar lending book. Shilling deposits have dominated their balance sheets, while dollar deposits tend to be short-term and flighty, leaving when sentiment turns.
Trade finance flows are similarly unreliable as a funding base, traders say. This is because export receipts are seasonal, import demand is uneven and arrives in bursts and neither produces the predictable, long-dated dollars a bank needs to underwrite a five-year loan.
This mismatch forces Kenyan businesses needing dollars to borrow for short-term and refinance, or pay a premium for scarce long-tenor funding. Both raise the cost of capital and shorten planning horizons.
But the EBRD facility changes that arithmetic. "It's a stable source because it's not being driven by the whims of the spot market," the source said. "Co-op has built a war chest against which it can lend."
KESONIA, launched as Kenya's alternative to the discredited interbank rate, is calculated from actual overnight lending between banks.
Using it as the pricing anchor gives the arrangement a transparent, locally verifiable reference, the kind of infrastructure foreign lenders need before committing long-tenor capital.
Analysts expect more Kenyan lenders to pursue similar structures.
Access to multilateral dollar funding is a competitive advantage in a market where dollar liquidity is tight and expensive, and where the Central Bank of Kenya (CBK) has been pushing for deeper local capital markets. Once one bank has priced such a deal, others can benchmark against it.
If other banks follow, according to analysts, the cumulative effect could be a deeper, better-priced dollar lending market for Kenyan businesses and a shorter queue for the foreign exchange they need to trade under the very agreements the government has been signing.