Small construction companies in Kenya are facing increasing difficulties in repaying loans, driven by delayed government payments, rising material costs, and limited cash flow, according to a new report by CIS Kenya. The report revealed that the building and construction sector has the highest loan default rate, posing a significant financial challenge to small and medium-sized enterprises (SMEs) in the industry.
Rising Loan Defaults in the Construction Sector
The CIS Kenya analysis shows that micro, small, and medium enterprises (MSMEs) operating in the construction, mining, and hospitality sectors have recorded the highest loan default rates in recent years. The report noted that the construction sector alone accounted for an 18% loan default rate, driven primarily by:
- Delayed government payments on completed projects.
- Escalating material costs such as cement, steel, and other building materials.
- Heavy reliance on credit facilities to execute large-scale projects.
The financial strain has pushed many small construction companies to the brink of financial collapse, with some facing legal action from banks and lenders over non-performing loans.
Delayed Government Payments A Major Setback
One of the most significant challenges highlighted in the report is delayed government payments for completed or ongoing projects. Small construction companies heavily depend on government contracts, and when payments are delayed, the firms struggle to repay their loans or even meet operational costs.