Fees paid on idle loans rise on weak Kenya shilling

The Kenya shilling could finally be finding a new footing after it slowed down its monthly free fall to one percent.

Commitment fees paid to foreign lenders for undisbursed loans rose by 25 percent to Sh499 million in September, pointing to the adverse effects of a devalued shilling on the country’s external debt service costs.

A commitment fee is an amount charged by a lender to a borrower to compensate for its commitment to put up the loan funds. They are typically associated with unused credit lines or undisbursed loans.

Data from the National Treasury shows that Kenya’s commitment fees in September last year stood at Sh398.5 million, with a big chunk of the money being paid to the World Bank.

Earlier, Treasury officials expressed concern over the high commitment fees they are forced to pay for undisbursed external loans, a situation they said has been aggravated by the weakening of the shilling.

Debt service costs, said CBK Governor Kamau Thugge, had increased by Sh6.9 billion on account of exchange rate depreciation.

Disclosures contained in the CBK presentation to the National Assembly’s public debt and privatisation committee about the affairs of the Consolidated Fund showed that the country’s stock of external debts and the cost of repayment is increasing by Sh3.16 billion every day as the shilling weakens against the dollar.

By the end of September, the Treasury had already paid a total of Sh1.86 billion in commitment fees from the same month last year.

The fee is charged because the lender has set aside funds for the loan but cannot yet charge interest pending drawdown.

The lack of counterpart funding by the government of Kenya is the main reason most development partners such as the World Bank have withheld funds.

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