Kenya’s Rafiki Microfinance Bank loses $1.6 million tax case

Rafiki Microfinance Bank Limited, founded by Kenyan entrepreneur Daniel Mavindu, has lost a $1.6 million (Ksh207.6 million) tax dispute after Kenya’s Tax Appeal Tribunal ruled in favor of the Kenya Revenue Authority (KRA), escalating pressure on lenders grappling with rising non-performing loans.

The ruling clarifies that suspended interest on distressed assets remains taxable, reinforcing stricter income recognition rules across Kenya’s financial sector.

Tribunal upholds tax assessment
At the center of the dispute was whether interest accrued on non-performing loans, classified as suspended, should be subject to income tax. The tribunal upheld KRA’s position, confirming an income tax assessment of Ksh47.8 million ($367,459.02) alongside penalties of Ksh159.7 million ($1.23 million).

In its decision, the tribunal dismissed the bank’s appeal and affirmed the objection ruling issued on March 14, 2025, effectively validating the full tax liability. The judgment marks a decisive interpretation of tax obligations on impaired financial assets, an issue that has long been contested within the banking industry.

Partial settlement, final blow
The case had initially seen partial resolution after both parties filed a consent agreement in December 2025, settling several contested issues. However, the core dispute, relating to suspended interest and associated penalties, remained unresolved until the tribunal’s final determination in February 2026.

By siding with KRA, the tribunal has now closed the case, leaving Rafiki Microfinance Bank with a substantial financial obligation and limited legal recourse.

Implications for lenders
Rafiki Microfinance Bank, a Kenyan deposit-taking microfinance institution regulated by the Central Bank of Kenya, was founded by Daniel Mavindu. Established to foster economic empowerment. Founder Daniel Mavindu serves as the Founder & Chairman. It is a sister company to Chase Bank (Kenya) Limited offering banking services and has been involved in financial partnerships, including low-cost housing financing.

The ruling is expected to have broader implications for Kenya’s microfinance and banking sector, where non-performing loans remain a persistent challenge. By affirming that suspended interest can still attract tax liabilities, the decision may compel lenders to reassess provisioning practices, tax strategies, and risk management frameworks.

For Rafiki Microfinance Bank, the outcome adds financial pressure at a time when lenders are already navigating tight liquidity conditions and rising credit risks. More broadly, the case underscores the growing assertiveness of Kenya’s tax authority in enforcing compliance and clarifying grey areas in financial reporting and taxation.