Small and medium-sized enterprises are the lifeblood of Kenya’s economy. They make up more than 98 per cent of businesses, employ about 14.9 million Kenyans and contribute roughly 40 per cent of the GDP.
SMEs are the engines of innovation, employment and household income, the very foundation of Kenya’s Vision 2030 and the African Continental Free Trade Area.
Yet, as these enterprises expand into regional and global markets, an invisible but powerful threat of trade-based money laundering has emerged. Once dismissed as a technical issue for banks and regulators, TBML is now a frontline risk shaping which businesses gain access to international finance and which are locked out.
TBML occurs when criminals disguise illicit funds as legitimate trade. They manipulate invoices, falsify pricing or quantities and use shell companies or third-country routing to move money across borders under the guise of trade. This misuse of commerce distorts markets, undermining the integrity of Kenya’s financial system.
SMEs, the very enterprises driving Kenya’s growth, are often the easiest targets. Many do not have the systems in place to identify suspicious transactions, nor the expertise to navigate global compliance frameworks. As a result, they risk becoming unwilling conduits for illicit flows, exposing themselves to reputational damage or even criminal penalties.
Kenya’s grey-listing by the Financial Action Task Force has made this issue even more urgent. The country’s financial system, and every transaction that touches it, is now under sharper scrutiny from international partners.
Banks, development financiers and global trading companies are increasingly adopting a policy of de-risking, cutting ties with any business that cannot demonstrate transparency. For SMEs, this could mean delayed payments, cancelled contracts or loss of access to correspondent banking channels vital for trade.
The irony is that TBML thrives not because Kenyan businesses are corrupt, but because many are unprepared. They see compliance as a cost rather than a competitiveness issue. Yet in today’s world, transparency is the new currency of trade. Firms that can show verifiable trade documentation and transparent transactions are the ones global partners will trust.
This is why SMEs must rethink compliance as a business growth strategy. Practices such as knowing your customer protocols for supplier verification and using traceable payment systems are not bureaucratic hurdles; they are business enablers. They help SMEs build credibility and integrate smoothly into global supply chains.
The recent push for beneficial ownership registration under the Business Registration Service, for instance, is part of a broader movement toward trade transparency. It is not the story itself, but a symptom of the world’s growing demand for clean trade.
But compliance cannot be achieved in isolation. Tackling TBML requires strong partnerships between SMEs and financial institutions. Banks are no longer just financiers; they are now the gatekeepers of trust in cross-border commerce.
A forward-looking bank must go beyond offering letters of credit; it must actively help its clients recognise and respond to red flags such as unusual pricing patterns, payments routed through unrelated third countries or dealings with counterparties in sanctioned jurisdictions.
The risks of inaction are immense. Failure to address TBML could see Kenya’s SMEs excluded from lucrative regional and international markets just as the AfCFTA opens new frontiers for trade. Reputational damage could also spill over to the broader economy, discouraging foreign investment and making it harder for legitimate enterprises to access global finance.
Moreover, TBML weakens national revenue collection. When trade is manipulated to move illicit funds, governments lose taxes, customs duties and foreign exchange. In the long term, this erodes the very foundations of economic stability and growth that SMEs help sustain.
Kenya stands at a crossroads. The same globalisation that is creating new export opportunities is also increasing exposure to complex financial risks. The winners of this new era will be the SMEs that treat integrity as their strongest competitive advantage.
To thrive, they must embed compliance into their business DNA. Regulators, banks and business associations must also play their part by simplifying compliance processes, increasing awareness and rewarding businesses that demonstrate financial integrity.
The cost of opacity is exclusion. But the reward for transparency is access, opportunity, and growth. Kenya’s SMEs have the talent and ambition to lead the continent’s trade revolution. Now they must match that ambition with systems that make their integrity visible to the world.
Those who act now will not only withstand global scrutiny, they will define the next chapter of Africa’s credible, competitive and compliant trade story.
Head of Trade Finance at Victoria Commercial Bank PLC in Kenya
