Experts call for urgent action to bridge Kes 4 trillion MSME funding gap

Despite being the heartbeat of local commerce, micro, small, and medium enterprises (MSMEs) face a severe credit crunch.

Data from the revised MSME policy review process shows small businesses require Sh4 trillion in market loans to sustain and expand operations.

However, commercial banks currently supply only Sh700 billion. This leaves a massive Sh3.3 trillion financing shortfall.

The vast funding gap highlights the persistent barriers local entrepreneurs face when trying to access formal credit.

Even though they drive national job creation, traditional lenders often view SMEs as high-risk due to a lack of collateral and formal financial records.

Without urgent policy interventions to bridge this deficit, economic experts warn that informal sector growth will remain severely constrained, stifling broader national economic progress.

“Traditional banking models rely heavily on physical collateral and formal records, an exclusionary framework that eliminates a vast majority of viable Kenyan enterprises,” says Julius Ouma, CEO, Faulu Microfinance Bank.

“To bridge this operational divide, we must adopt alternative credit models that assess cash flows, transaction patterns, and consumer behavior instead of fixed assets,” he added.

According to Ouma, small businesses do not require uniform credit facilities. Instead, credit needs vary drastically across sectors.

Retailers require rapid, short-term cash injections to secure inventory. Agricultural players need structured facilities tied explicitly to seasonal harvesting timelines. Logistics operators demand heavy asset-financing options to procure delivery fleets.

Traditional lenders must therefore restructure their lending models to address systemic inefficiencies in how they service small businesses facing rising operating costs.

“Faulu Microfinance has been leading this charge, by shortening loan approval windows so business owners do not lose time-sensitive market opportunities,” said Ouma.

Alongside faster disbursement, the lender pairs capital with digital tools and targeted education in tax planning and debt management to help small businesses formalize operations and build long-term bankability.

This deliberate market shift underscores a broader trend by the lender of viewing the informal and semi-formal sectors as highly competitive commercial segments rather than social corporate responsibilities.

By coupling structural lending with robust mobile cash management infrastructure, the lender effectively helps Kenyan businesses transition from daily survival to sustainable, long-term corporate growth.