Infrastructure bonds in Kenya: the tax-free bond explained
Updated 15 October 2026 · 6 min read
An infrastructure bond (IFB) is a Treasury bond that the Government of Kenya issues to pay for roads, energy, water and other projects. It works like any other bond, with one big difference: the interest is tax-free. That's why IFB auctions are often heavily oversubscribed.
How an infrastructure bond works
You lend money to the government. In return it pays you interest, called a coupon, every six months, and gives your money back over the life of the bond.
- Term: usually between 6 and 25 years.
- Coupon: fixed when the bond is first issued and never changes. Check the latest Central Bank prospectus for the coupons on offer.
- Who sells it: the Central Bank of Kenya (CBK), on behalf of the National Treasury.
- Name format: IFB1/2023/17 means the first infrastructure bond of 2023, with a 17-year term.
Why the coupon is tax-free
Interest on infrastructure bonds is exempt from tax under the Income Tax Act, and CBK prospectuses list withholding tax on IFBs as "not applicable". You get the full coupon. Ordinary Treasury bonds are taxed:
| Treasury bond under 10 years | 15% withholding tax |
| Treasury bond of 10 years or more | 10% withholding tax |
| Infrastructure bond | No tax |
What tax-free is worth
Take a coupon of 12% a year on KSh 100,000. This is an example only, not a current rate.
| IFB | Bond under 10 years | |
| Coupon every six months | KSh 6,000 | KSh 6,000 |
| Tax | KSh 0 | KSh 900 |
| You receive | KSh 6,000 | KSh 5,100 |
To match a 12% tax-free coupon, a bond taxed at 15% would need a coupon of about 14.1% (12% ÷ 0.85). One taxed at 10% would need about 13.3% (12% ÷ 0.90). Compare like with like using the bond calculator.
You may get your money back early
Many infrastructure bonds are amortising: they repay your money in parts before the final maturity date, not all at the end. For example, the three IFBs reopened in August 2026 each repay half the principal on a set date and the rest at maturity. Two things follow:
- Your coupons shrink after each repayment, because interest is only paid on what's still invested.
- You need a plan for the money that comes back. It lands in your bank account and earns nothing until you reinvest it.
Check the repayment dates in the prospectus before you bid.
How much you need
Each bond's prospectus sets the minimum. At the August 2026 reopening, the minimum non-competitive bid was KSh 50,000 and the maximum KSh 50 million. Older IFBs needed KSh 100,000. Competitive bids, where you name your own rate, start at KSh 2 million.
How to buy an infrastructure bond
At auction, on DhowCSD. New IFBs and reopenings are sold at auction on the Central Bank's DhowCSD app and website, with no fees.
- Open a DhowCSD account. Our DhowCSD guide walks you through it.
- Read the prospectus on the CBK website for the bid deadline and payment date. IFBs aren't sold every month, so watch for announcements.
- Place a non-competitive bid: you accept the average rate set at the auction.
- After the auction, check whether your bid succeeded and how much to pay.
- Pay by the settlement date. Coupons and repayments then go straight to your bank account.
At a reopening, the price can be above or below KSh 100 per KSh 100 of bond. It depends on the rate accepted at auction and the interest already built up.
On the Nairobi Securities Exchange. IFBs are listed on the NSE, so you can buy existing bonds between auctions through a licensed stockbroker. You'll need a CDS account with the broker and will pay trading fees.
The risks
- Price risk if you sell early. If interest rates rise after you buy, new bonds pay more, so yours is worth less. Sell before maturity and you may get back less than you paid.
- Interest rate risk. Your coupon is fixed for years. If rates go up, you're locked into the lower rate unless you sell.
- Liquidity. Selling on the NSE takes time and a broker. Don't put in money you may need soon.
- Reinvestment risk. Early repayments may come back when rates are lower.
- Government credit risk. IFBs are backed by the Government of Kenya, the safest borrower in shillings. Safest is not risk-free.
If you want something you can get out of quickly, a money market fund or a T-bill is a better fit.
Frequently asked questions
Are infrastructure bonds in Kenya really tax-free?
Yes, the interest on infrastructure bonds is exempt from withholding tax under the Income Tax Act. Ordinary Treasury bonds pay 15% (under 10 years) or 10% (10 years or more).
What is the minimum to invest in an infrastructure bond?
It's set in each bond's prospectus: KSh 50,000 at the August 2026 reopening on DhowCSD, while older issues needed KSh 100,000.
Can I sell an infrastructure bond before it matures?
Yes, you can sell on the Nairobi Securities Exchange through a stockbroker. The price depends on interest rates at the time, so you could get back more or less than you paid.
How often do infrastructure bonds pay interest?
Infrastructure bonds pay interest every six months until they mature. Part of your money may also be repaid early if the bond is amortising.
For education only, not financial advice. Minimums, coupons and repayment dates differ for each bond: check the Central Bank of Kenya's prospectus and DhowCSD before you invest.