When John Githongo, Kenya's anti-corruption tsar, suddenly went to ground during an official visit to Europe last year, the Kenyan and international media launched a frantic man-hunt to establish why "the big man" had abandoned his post. That interest did not die away when Githongo eventually resurfaced at an Oxford college. It didn't take a genius, after all, to guess that when the official responsible for policing an African government's finances flees, something is seriously amiss.

Given that the international community each year supplies Kenya with nearly $500m in aid, you might expect the World Bank, the International Monetary Fund and western governments to share that curiosity. As one of Kenya's three biggest donors, Britain would surely be particularly concerned.

Not so. Githongo, as it happens, has never been debriefed by the Department for International Development, whose boss Hilary Benn recently announced £55m in new funding for Kenya. Benn's gesture of approval was echoed by the World Bank, which last week shocked many by unveiling $120m in loans for the east African state.

The astonishment springs from the fact that in the very week the loan was unveiled, the Kenyan press began publishing Githongo's explanation of why he resigned. The contents of a 36-page dossier compiled in exile are being drip-fed to a transfixed audience. His dossier accuses a clutch of key ministers, including the finance minister, of setting up bogus contracts designed to steal hundreds of millions of dollars in public funds. The scandal stretches to the top, for, despite being briefed by Githongo, President Mwai Kibaki took no action. All those named protest their innocence. But if the claims are true - and few whistleblowers come with more credibility than Githongo - Kenya's three-year-old government has not so much broken with the sleazy practices of Daniel arap Moi's administration as raised them to new levels of sophistication.

Given the seriousness of the claims, the new loans have triggered apoplexy in many quarters. Sir Edward Clay, Britain's former high commissioner to Nairobi, has written to Paul Wolfowitz, the new World Bank head, to protest at its "blind and offensive blundering" that makes a mockery of "the brave men and women taking risks to ensure that the scourge of corruption is banished".

Analysts wonder what to make, now, of Wolfowitz's declarations that fighting graft is a priority. His actions, including the suspension of a $124m loan to Chad for reneging on a deal aimed at ensuring oil revenues reached the poor, had suggested an era of tough engagement lay ahead. The Kenya loan smacks of a return to the bank's traditional way of doing business in Africa, which kept the likes of Zaire's Mobutu flush with funds.

Why are western donors effectively conspiring in top-level fraud? DfID officials, when challenged, argue that aid cut-offs "only hurt the poorest of the poor" and insist that on-the-ground policing ensures DfID money itself is never filched. But this is naive. An administration bent on plunder simply focuses its energies on parts of the budget not policed by foreign donors. The "poorest of the poor" may end up with first-rate schools at the end of roads too potholed to be passable: development cannot be delivered in self-contained parcels. The notion that aid can sidestep shoddy government to reach the base is threadbare.

But there are pragmatic reasons why lenders are reluctant to admit as much. In Britain's case, having pushed for a doubling of aid and less conditionality for "progressive" African governments, London is finding it embarrassingly difficult to disburse. In Ethiopia, it recently cut direct budgetary support after a brutal post-election crackdown, and in Uganda it has frozen aid because of the government's backsliding on democracy. With two African favourites already in trouble, there's no appetite for adding Kenya, bound to London by an emotional and historical umbilical cord, to the list of African "problem cases". And let's not forget how the war on terror has boosted the vision in London and Washington of Kenya as a stable ally in a stormy region.

Both DfID and the World Bank have sought to put a positive spin on their actions. Announcing the new loan, the World Bank made much of the fact that $25m would go on improving financial management in Kenyan ministries - a gesture described as "hilarious" by Sir Edward Clay. DfID stresses that Benn told Kibaki to clean up his act during their meeting. One can imagine just how seriously that admonition went down, delivered alongside a £55m cheque.

The issues raised by this scandal stretch well beyond east Africa, going to the heart of the more-aid-and-less-questions formula for the continent's recovery embraced last year at Gleneagles. Donors should be asking themselves whether their aid, rather than helping, is contributing to the decline of countries such as Kenya. Determined to engage with the continent, western governments seem all too ready to acquiesce in massive cons perpetrated on both western taxpayers and African voters. Having been repeatedly asked by Kenyans why my government insists on funding crooks, I can assure both DfID and the World Bank that the "poorest of the poor" will not thank them for it.

· Michela Wrong is the author of In the Footsteps of Mr Kurtz and I Didn't Do it for You