MSMEs Set for Growth as Kenyan Banks Pledge KES 450 Billion in Financing Over 3 Years

In a significant move to boost the growth of Micro, Small, and Medium-sized Enterprises (MSMEs), the Kenyan banking sector, under the Kenya Bankers Association (KBA), has committed to injecting KES 450 billion in financing to MSMEs over the next three years. This ambitious initiative is set to provide much-needed access to affordable credit, empowering these businesses to thrive, create jobs, and contribute to the country’s economic growth.

The announcement was made during the launch of the MSME Accelerator Program and the release of the Banking Industry Total Tax Contribution Report 2023 at the Kenyatta International Convention Centre (KICC). The MSME Accelerator Program aims to provide mentorship, financial literacy training, and market access interventions, further supporting small businesses in scaling up and formalizing their operations.

A Bold Step Towards Economic Growth

The banking sector’s commitment, which translates to KES 150 billion annually from 2025, underscores the importance of MSMEs in Kenya’s economy. MSMEs currently contribute around a third of the country’s Gross Domestic Product (GDP) and provide 80-90% of employment opportunities. However, many of these businesses struggle with accessing affordable finance, which hampers their growth and limits their economic contribution.

In his remarks during the event, President William Ruto lauded the banking sector for its commitment to doubling lending to MSMEs, emphasizing the critical role these businesses play in Kenya’s economic development. The President expressed the government’s support for this initiative, pledging policy and institutional backing to ensure its success.

“I commend the banking industry’s pledge to double lending to MSMEs by providing KES 150 billion in new loans annually, beginning 2025. The government will support this bold and innovative move through policy and institutional support, including measures to guarantee the prompt payment of all pending government bills,” said President Ruto.

Tackling MSME Challenges

While the banking sector’s increased financial commitment offers great potential, challenges remain. One key issue highlighted during the event is the KES 70 billion in pending bills owed to MSMEs. These delays negatively affect the viability of small businesses and disrupt supply chains. The banking industry, led by KBA Chairman John Gachora, called on the government to resolve these issues to foster a healthier business environment for MSMEs.

Gachora also stressed the need to streamline regulatory requirements that often overwhelm small businesses. “Nearly 60% of entrepreneurs feel overwhelmed by compliance requirements, which can hinder their ability to innovate and expand,” Gachora said, urging the government to create a more conducive regulatory framework.

Launch of the MSME Accelerator Program

A major highlight of the event was the launch of the MSME Accelerator Program, an initiative designed to support small businesses by offering mentorship, tailored financial literacy training, and market access interventions. This program aims to empower MSMEs to formalize their operations, improve creditworthiness, and scale their businesses.

The banking sector has also played a key role in supporting MSMEs through the Inuka Enterprise Programme, which has trained businesses across the country, enhancing their operational efficiency and resilience. The success of this initiative is evident in the improved creditworthiness of MSMEs, which has contributed to increased access to credit and higher tax contributions to the government.

Banking Sector’s Tax Contribution

The release of the Banking Industry Total Tax Contribution Report 2023 revealed that the banking sector contributed KES 190.26 billion in taxes in the 2023 financial year alone. Over the past five years, the sector’s tax contribution has doubled, demonstrating its commitment to supporting Kenya’s development goals. From 2018 to 2023, the banking industry contributed a total of KES 825 billion to the economy, solidifying its role as a key player in national development.

These tax contributions play a significant role in driving Kenya’s economic agenda, supporting infrastructure development, public services, and overall economic activity. For every KES 100 generated by the banking sector, KES 57.2 goes to the government in taxes, underscoring the sector’s importance to the national exchequer.

Supporting MSMEs Through Government Policies

To complement the banking sector’s efforts, National Treasury and Economic Planning Cabinet Secretary John Mbadi highlighted the importance of a predictable tax environment to foster continued growth and investment in MSMEs. He commended the banking industry’s efforts in supporting small businesses through initiatives like the Inuka Enterprise Programme and emphasized the government’s commitment to providing an enabling environment for MSMEs.

“The implementation of a national tax policy and clear tax laws will reduce litigation between taxpayers and revenue authorities, creating a more conducive environment for businesses to thrive,” Mbadi said.

Looking Ahead: A New Era for MSMEs

The 2024 Inua Biashara MSME Exhibition, themed “Accelerating MSME Development for Sustainable Economic Growth,” showcased the collaboration between the banking sector and MSMEs. The event demonstrated the industry’s commitment to providing tailored financial solutions, capacity-building programs, and creating an enabling environment for MSMEs to flourish.

As the MSME Accelerator Program takes shape and the banking sector continues its efforts to unlock affordable financing, there is optimism that these businesses will significantly contribute to Kenya’s socio-economic transformation. With the right financial support, MSMEs can drive innovation, create jobs, and play a pivotal role in achieving the country’s development goals.

In conclusion, the Kenyan banking sector’s KES 450 billion commitment over the next three years marks a critical turning point for MSMEs. As both the public and private sectors rally behind small businesses, the country is poised to see sustainable economic growth driven by MSMEs, creating a brighter future for all.