Banks slow down lending to small businesses

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Commercial banks have reduced lending to Micro, Small and Medium-sized Enterprises (MSMEs) by Sh23 million since interest capping was signed into law in September last year. Statistics from the banks indicate that the sector borrowed Sh210 million in March this year compared to Sh233 million received in August last year, a 15 per cent reduction.

About 1.7 million MSMEs operate in Kenya and are considered a remedy to several economic woes like unemployment, poverty, income inequalities and regional imbalances.

Kenya Bankers Association (KBA) chief executive Habil Olaka says these enterprises are important to growth of the economy and a reduction in funding to the sector has an impact, especially on employment. Risky nature Olaka says banks are unable to lend to the sector due to their risky nature.

“The credit slowdown is due to the tightening of credit standards which has led to lower volumes of loans going to customers perceived as risky borrowers,” he says.


Due to the tough economic environment, a lot of MSMEs have been forced to layoff staff mainly due to lack of funds to expand. “This drastic move away from MSMEs to larger companies and Government securities was due to the industry shifting towards less risky investments following enactment of the Banking (Amendment) 2016 Act,” says Hezbourne Ong’elle, CEO, Breinscope Consultants Limited.

Ong’elle says MSMEs are more efficient, providing more employment opportunities at relatively lower costs. Employment intensity of MSMEs is estimated to be four times greater than that of large enterprises. It’s due to this immense responsibility that KBA has developed a curriculum tailored to MSMEs to be implemented under Inuka Enterprise Development Programme.

Currently, around 1.7 MSMEs are generating 20 million employment opportunities, contributing eight per cent to the Gross Domestic Product, 45 per cent of total manufacturing output and 40 per cent of the total exports from the country. MSMEs account for more than 80 per cent of the total industrial enterprises in Kenya creating more value-added products.

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