Venture Debt in Kenya: An Alternative to Equity Financing for Startups

Kenyan startups borrowed close to half a billion dollars in 2025, roughly matching what they raised in equity that year, and debt is increasingly the first call founders make rather than the last resort it once was. Venture debt has no bespoke legal category of its own in Kenya, which makes it easy to misunderstand what it actually is, how it is regulated, and what it costs.

There is no such thing as a “venture debt licence” in Kenya

Kenya has no statute, CBK regulation, or licensing category that names or specially treats venture debt as a distinct financial product. It is ordinary commercial lending, structured contractually, typically combining a loan with warrant coverage giving the lender an option to take equity later. The regulatory question that actually matters is not “is this venture debt” but “who is lending, and under what licensing regime.” A domestic Kenyan lender making loans to startups currently falls under the Central Bank of Kenya (Digital Credit Providers) Regulations, 2022, which are set to be replaced by the draft Central Bank of Kenya (Non-Deposit Taking Credit Providers) Regulations, 2025, published for comment in August 2025. That draft would consolidate oversight of non-deposit-taking credit businesses generally, including asset financing and buy-now-pay-later products, under a KES 20 million capital threshold separating full licensing from lighter registration. As of this writing it remains a draft, not yet gazetted, and law-firm commentary on the draft has specifically flagged concern that its broad language could inadvertently capture foreign lenders, including development finance institutions lending cross-border into Kenya, an open scope question that has not been resolved.

What Kenyan venture debt deals actually look like

The best-documented Kenyan deals in this space are development-finance-institution-backed, and it is worth being precise about what kind of debt they actually are, since much of it is asset-backed or receivables financing rather than classic warrant-coverage venture debt in the Silicon Valley sense. AHL Venture Partners provided Watu, a Kenyan asset-finance fintech, a $7 million non-dilutive debt facility in September 2026, building on a lending relationship dating to 2022. Verdant Capital’s Hybrid Fund completed a $7 million dual-tranche subordinated and senior secured loan to Mogo Kenya, structured specifically to crowd in additional senior lenders. M-KOPA has drawn on multiple facilities, including an IFC sustainability-linked loan, an FMO commitment of $30 million to its Kenyan e-mobility subsidiary, and an $80 million commercial facility for its solar business. Twiga Foods secured a $29.4 million IFC debt facility for working capital and farmer payments, and Sun King’s Kenyan solar receivables underpinned a $156 million Citi-backed securitisation. These are real, verifiable numbers, but they mostly describe asset-backed and receivables-based structures rather than pure equity-stage venture debt with meaningful warrant coverage; a founder should not assume the terms reported in these deals are representative of what a smaller, earlier-stage tech startup without hard assets to finance would be offered.

Tax treatment: two provisions that change the real cost of debt

Two Income Tax Act provisions matter for any Kenyan startup taking on debt from a foreign or related-party lender. First, an earnings-stripping rule restricts the deductibility of interest paid to non-resident or certain related-party lenders to 30% of EBITDA, with tax-exempt income excluded from that base; any disallowed excess can be carried forward for up to three years, still subject to the same cap each year, and banks, licensed microfinance institutions, and hire-purchase companies are excluded from the restriction. Second, interest paid to a non-resident lender is generally subject to a 15% withholding tax, though double tax treaty relief can reduce this depending on the lender’s jurisdiction, sometimes to as low as 10 to 12%. A startup negotiating venture debt terms with a foreign DFI or fund should model both of these into the effective cost of the facility, not just the headline interest rate.

What we could not verify, and why that matters

We were not able to find independently verified figures for typical Kenyan-market venture debt interest rates, warrant coverage percentages, or covenant terms; general venture debt guides describe these mechanics in the abstract, but Kenyan deal-specific terms of this kind are not publicly disclosed in the sources available. A founder should treat any specific rate or warrant percentage quoted informally in the market as anecdotal rather than benchmarked, and negotiate based on the actual terms offered rather than a assumed market standard that does not yet have public data behind it in Kenya.