Kenyan banks earned Sh12.7 billion more from lending to micro, small, and medium enterprises (MSMEs) in 2024 compared to 2022, largely driven by higher interest rates that increased the cost of loan servicing for the small businesses.
Data from the Central Bank of Kenya (CBK) shows that interest income from SMEs rose from Sh79.1 billion in 2022 to Sh91.8 billion last year –a 16 percent increase.
However, the growth in interest revenue was not matched by a similar rise in loan volumes, with total credit to SMEs increasing marginally from Sh783.3 billion to Sh784.4 billion over the two-year period. This suggests that the higher earnings were primarily the result of more expensive credit rather than expanded access to loans.
Interest rates charged by commercial banks on SME loans rose from an average of 15.5 percent in December 2022 to 16.4 percent in 2024. Microfinance banks (MFBs) recorded a slight drop in their average rate, from 27 percent to 26.3 percent during the same period.
“While a rise in interest rates in 2024 raised the cost of borrowing, it also translated into increased interest income for financial institutions. This directly contributed to the growth in revenue from MSME lending,” said CBK in a report on banking sector lending to MSMEs.
Medium-sized enterprises, defined as firms with annual turnover of between Sh5 million and Sh100 million per annum and employing between 50 and 250 people, bore the heaviest cost, paying a total of Sh47 billion in interest and fees in 2024.
Micro enterprises, which have a turnover of less than Sh500,000, paid Sh25.7 billion in interest and fees—more than small enterprises, which paid Sh19 billion, despite receiving more in total loans.
In 2024, micro enterprises owed Sh83.5 billion to commercial banks and Sh5.8 billion to microfinance banks. Small enterprises held Sh204.15 billion in loans from banks and Sh8 billion from MFBs.
Medium enterprises accounted for the largest share of borrowing, with Sh473 billion from commercial banks and Sh9.8 billion from microfinance lenders.
Interest rates varied across business categories. Micro-enterprises received the lowest average rates from both commercial banks and microfinance institutions, at 16 percent and 23.8 percent respectively.
Microfinance banks, however, charged small firms an average of 30.9 percent—higher than the 24.3 percent charged to medium-sized businesses. Commercial banks applied nearly uniform rates to both small and medium firms, at 16.6 percent and 16.7 percent respectively.
The growth in SME lending comes as more local lenders secure funding from international financiers to expand or subsidise credit to the sector, which has long faced limited access to affordable financing.
KCB, Equity, Co-operative Bank of Kenya, NCBA and Stanbic Bank are among the banks that have recently signed deals to provide subsidised loans to MSMEs, with a particular focus on women-led enterprises.
