A growing number of institutional investors are shifting to innovative off-balance-sheet financing (OBSF) schemes in East Africa, a regional lender said, lured by the rising appetite for infrastructure project funds by governments in the bloc.

OBSF is an accounting practice that structures certain assets or liabilities of governments or corporations so they don't appear on the balance sheet, therefore creating some financial breathing space.

It involves omitting certain capital expenditures or assets from the balance sheet and is commonly used by businesses that are highly leveraged, especially when taking on more debt means a higher debt-to-equity ratio, which can attract higher interest charges.

“We have seen a shift from the traditional plain vanilla lending and towards more structured type lending, and we are seeing pension funds becoming very influential in this region because of the financial muscle that they hold,” Absa Investment Bank’s Director for East Africa, Daniel Odongo, told Business Daily.

“Kenya has about $ 22 billion thereabouts worth of pension assets; we have half that size (about $11billion in Tanzania), about $8 billion in Uganda, and roughly $3 billion in Rwanda.”

Pension funds in East Africa hold Sh5.7 trillion worth of assets under management.

The region’s pension funds, which have traditionally been concentrated in investing in risk-free government paper, are now driving the appetite for emerging solutions such as securitisation as they seek to rebalance their portfolios and unlock better returns for their investors.

“Government securities continue to play a significant role as an asset class, and a lot of the pension funds do invest in them.

However, we are seeing a shift in this trend as many look for diversification because pension funds are holding retirement money and therefore have to think long-term and find matching assets,” Odongo says.

The official said that OBSF has become popular amid pressure for infrastructure capital.

“Off-balance sheet is really about governments, or even corporates, leveraging their assets to raise financing without having to book in additional debt. Public-Private Partnerships are one case in point. We have securitisation, with a good case in point in the Kenyan market where the Roads Board was able to raise capital on the back of future revenues. So, it’s all about using a predictable source of revenue and using that to actually raise financing today”, Mr Odongo said.

Kenya has recently securitised cashflows related to its Roads Maintenance Levy to unlock financing for settlement of arrears owed to road contractors so as to kick-start projects that had stalled across the country.

The government has also securitised cashflows into the Sports Fund to mobilize Sh44.0 billion worth of financing for the 60,000-seater Talanta Stadium, in Kenya’s first asset-backed listing at the Nairobi Securities Exchange.

The government of Kenya has signaled plans to accelerate payment of verified pending state arrears over the next two years, a stance that potentially signals more opportunity for institutional investors like pension funds looking to tap into alternative asset classes for investment.

“The Pending Bills Verification Committee reviewed 91,911 claims valued at Sh637.6 billion, recommending settlement of 29,885 claims worth Sh235.6 billion. Sh80.3 billion has already been settled through securitisation, the remaining Sh155.3 billion will be settled over two years beginning 2026/27 through a combination of budgetary allocation and securitization,” National Treasury Principal Secretary Chris Kiptoo said during the launch of the 2027/28 budget cycle.

As at the close of May 2026, Kenya’s stock of public debt stood at Sh12.89 trillion, accounting for 68.8 percent of the country’s Gross Domestic Product (GDP), with domestic debt accounting for Sh7.24 trillion while external debt accounted for Sh5.66 trillion.

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