In a statement, KDC explained that the bad debt stems from a legacy loan portfolio that accumulated over time due to penalties and interest. The initial loan amount of Sh1.36 billion, disbursed to empower entrepreneurs between 1965 and 2008, had ballooned to Sh31.8 billion due to the accrual of interest and penalties amounting to Sh30.45 billion. Many of the borrowers are long deceased, and the securities, mostly ancestral lands, are either missing or irredeemable.

Despite the growing debt, KDC reassured stakeholders that it is adhering to financial best practices. The corporation has stopped accruing interest on the legacy loans since March 2022, in compliance with the “in duplum rule” set out in the Banking Act, which caps the interest on non-performing loans to the principal amount. Additionally, the full provision for the losses has been made in accordance with International Financial Reporting Standard No.9.

While KDC’s legacy loan portfolio remains a concern, its active loan book, which includes 171 loan accounts with a total outstanding amount of Sh7.1 billion, is showing improvement. The corporation has made strides in reducing its Portfolio at Risk from 78% at the time of merger to 50.30% by the end of FY 2023-24. This reduction reflects KDC’s strengthened credit appraisal system and enhanced monitoring efforts.

KDC’s leadership emphasized its commitment to financial sustainability, urging stakeholders to focus on its ongoing efforts to restructure the legacy portfolio and the positive outlook of its active loans portfolio.

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The report, covering the fiscal year ending June 2023, indicates that KDC has stopped accruing interest on these bad loans, which has significantly impacted the corporation’s ability to generate much-needed funds. According to the rules, once a loan becomes non-performing, the interest accrued cannot exceed the principal amount outstanding. This move has severely limited KDC’s capacity to raise revenue and continue its lending operations.

Compounding the problem, many of the loans are backed by securities such as borrowers’ ancestral lands, which have either been lost, impaired, or deemed irredeemable. This has led to a dire situation where KDC has had to make full provisions for these losses, depleting its reserves and further straining its finances.

The financial distress has also affected KDC’s ability to provide new loans to potential borrowers, thus hindering its core mission. The corporation was originally established in November 2020, merging the operations of several financial institutions, including the Industrial and Commercial Development Corporation, Tourism Finance Corporation, and IDB Capital Limited. It offers long-term financing and advisory services to individuals and businesses across Kenya.

In addition to the loan crisis, the report raised concerns about KDC’s unsold housing units, which have been sitting idle for years. Despite being completed in 2015 and 2018, the unsold apartments valued at Sh490.5 million continue to incur service charges, further draining the corporation’s finances.

Without immediate intervention, the future of KDC and its ability to fulfill its mandate of supporting Kenya’s economic growth is at significant risk.

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