The Kenya Roads Board (KRB) has unveiled an innovative approach to tackling Kenya’s infrastructure funding gap — one that doesn’t require new taxes or more loans.
By leveraging its predictable revenue stream from the Road Maintenance Levy Fund (RMLF), KRB has successfully unlocked Ksh175 billion upfront to settle long-standing contractor arrears and revive over 580 stalled road projects across the country.
This financial mechanism is called securitization, and it’s a model that could revolutionise how Kenya and other nations fund critical public infrastructure.
At its core, securitization is a financial mechanism that allows an institution to raise money now by leveraging predictable future income.
Rather than taking on a traditional loan or waiting for funds to accumulate slowly over time, the institution bundles a portion of its expected cash flow and sells it to investors through a financial intermediary, typically called a Special Purpose Vehicle (SPV).
Details of the securitization model by KRB
This, in simple terms, is like borrowing against your salary for the next few years but using that money to pay off urgent obligations or make new investments today, without increasing your debt load or changing your income.
KRB has become the first public infrastructure agency in Kenya to apply this model on a large scale.
Faced with over Ksh175 billion pending bills to contractors, and more than 580 road projects stalled across the country, KRB needed a financing solution that would clear the backlog, unlock stalled development, and avoid putting more pressure on the exchequer or public debt
To do this, KRB securitized part of its income from RMLF. Specifically, it committed Ksh7 out of every Ksh25 per litre of fuel collected for the next ten years. This commitment was handed over to an SPV, which raised Ksh175 billion upfront from private investors.
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The investors will be repaid directly from the fuel levy, not from the government budget, over a period of years.
In addition, KRB bears no risk of revenue shortfalls — the SPV and its investors assume that risk in exchange for a return on their investment.
Benefits of the approach
No Additional Public Debt
Unlike traditional loans, securitization does not appear on the national balance sheet. It’s treated as a private commercial transaction, making it vital for Kenya, which has limited room for additional borrowing under its current debt sustainability constraints.
Immediate Liquidity
KRB receives the full Ksh175 billion now, allowing it to pay contractors who’ve been waiting for years, resume stalled road projects, and stimulate jobs and activity in the construction sector.
Efficient Use of Predictable Revenue
The Road Maintenance Levy is collected reliably through fuel sales. Its predictability makes it ideal for securitization, allowing investors to reasonably forecast future income streams.
No Increase in Fuel Prices or New Taxes
The existing fuel levy remains unchanged. This is not a new tax, but a smarter use of an existing one.
Risk is Shifted to the Private Sector
If fuel consumption drops or collections underperform, it is the investors, not the government, who bear the risk.
Significance for Kenya’s wider public sector
KRB’s securitization approach could serve as a blueprint for other revenue-generating government agencies that face capital constraints but have predictable income sources.
These include the Kenya Airports Authority (KAA) through passenger service charges, Kenya Ports Authority (KPA) through cargo and docking fees, Kenya Power or KenGen through energy tariffs and Water Service boards through bulk water sales.
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In each case, agencies could securitize part of their revenue streams to upgrade infrastructure, expand service delivery, clear pending bills, and invest in new technologies.
As long as the revenue streams are predictable and the financial structures transparent, securitization offers a way to break dependence on exchequer allocations or costly loans.
Challenges and Considerations
While the benefits are clear, successful securitization demands strict governance and transparency and clear legal frameworks to protect both investors and the public.
Also, careful project selection to ensure funds are used productively and strong institutional capacity within agencies to manage complex financial transactions are crucial.
Done right, this approach can unlock billions for Kenya’s development without straining its national finances. Done poorly, it could invite opacity or mismanagement.
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