Kenya’s micro, small, and medium-sized enterprises (MSMEs) have been given a significant boost with the announcement of a $5.2 million fund (approximately Ksh 667 million) from the British High Commission in Nairobi. This initial funding is part of a larger effort under the “Listed SME Debt Fund” sponsored by FSD Africa, aiming to raise up to $300 million (Ksh 38.85 billion) to improve access to affordable credit for MSMEs across Kenya. This initiative aligns with the UK’s longstanding commitment to driving economic growth and job creation in Kenya through sustainable financial solutions and investments.
Understanding the ‘Listed SME Debt Fund’
The “Listed SME Debt Fund” is an ambitious financial mechanism designed to address critical challenges faced by Kenya’s MSMEs, primarily the prohibitive borrowing costs that often reach up to 40% in annual interest rates. For many Kenyan entrepreneurs and business owners, these high rates create barriers to growth, stifling job creation and economic potential.
This fund will operate with a target of raising $300 million, with $240 million sourced from domestic institutional investors, including pension funds, and the remaining $60 million from foreign investors. Such a capital structure not only opens new avenues for MSME financing but also introduces Kenyan institutional investors to an emerging asset class that promises both stability and attractive returns.
The fund’s structure is particularly appealing to local investors as it offers de-risked investment opportunities, helping institutions like pension funds diversify their portfolios. Kenyan pension funds alone manage over $30 billion in assets, and while they are permitted to invest up to 30% in alternative assets, few have fully utilized this opportunity. The SME Debt Fund provides an incentive for these investors to channel their resources into impactful ventures, enabling greater liquidity and financial sustainability within Kenya’s MSME sector.
MSMEs: The Backbone of Kenya’s Economy
Micro, small, and medium-sized enterprises are fundamental to Kenya’s economy, accounting for approximately 98% of all registered businesses. Beyond their sheer numbers, these enterprises contribute around 24% of Kenya’s Gross Domestic Product (GDP). MSMEs also play a significant role in employment, creating jobs for 14 million Kenyans, or about 30% of the nation’s workforce. This workforce includes many marginalized groups, such as youth, women, and people with disabilities, who often struggle to access formal employment opportunities.
Despite their importance, Kenyan MSMEs face numerous financial challenges. In a market where high-interest rates are the norm, securing affordable credit has been a long-standing hurdle for these businesses. The SME Debt Fund, therefore, represents a targeted intervention that could reshape the landscape for small and medium-sized businesses by making financing more accessible and affordable.
Goals and Impact of the Fund
The primary aim of the SME Debt Fund is to make capital more accessible to Kenya’s MSMEs, with a clear focus on inclusivity. The fund targets to support at least:
- 10,000 MSMEs: Providing capital for business expansion and job creation.
- 50,000 households: Helping families gain improved access to essential services.
- 89,000 jobs: Supporting, protecting, and creating employment opportunities within the MSME sector.
- 200,000 people: Enhancing access to fundamental services, including healthcare, education, and sanitation.
The fund’s open-sector approach means that businesses across various industries—including agriculture, manufacturing, construction, and services—will be eligible for support. This flexibility is expected to have a far-reaching impact, as entrepreneurs from all walks of life, from fundis (artisans) to farmers, will be able to access credit more affordably, propelling them towards growth and stability.
Lowering the Cost of Borrowing for Kenyan MSMEs
High-interest rates are a persistent issue for Kenyan MSMEs, with rates often reaching as high as 40% for unsecured loans. Such rates make it nearly impossible for small businesses to thrive, let alone expand their operations. The British High Commissioner to Kenya, Neil Wigan, emphasized the importance of lowering these costs, particularly for underserved groups such as women, youth, and persons with disabilities, who often face the greatest barriers to financial access.
“The UK’s economic relationship with Kenya is the cornerstone of the UK-Kenya strategic partnership, and we look forward to delivering this together,” Wigan stated. He affirmed that the new fund would deliver on the UK’s long-term goal of fostering a more inclusive and supportive economic environment in Kenya, one that truly benefits the “hustlers” and hardworking entrepreneurs who form the backbone of the economy.
Role of FSD Africa in Capital Market Development
The Listed SME Debt Fund is spearheaded by FSD Africa, a development finance institution focused on stimulating and diversifying Africa’s capital markets. Fully funded by the UK Government, FSD Africa has been instrumental in creating innovative financial solutions for various sectors across the continent. By developing capital markets through partnerships and initiatives like this fund, FSD Africa is helping reshape Kenya’s financial landscape.
According to FSD Africa CEO, Mark Napier, the SME sector is pivotal for Kenya’s socioeconomic transformation. Napier stated, “This fund will provide affordable credit to businesses which have, historically, faced challenges in accessing financing. Moreover, the fund will offer MSMEs a route to growth across borders and support local employment rates and the growth of the Kenyan economy.” This mission aligns with FSD Africa’s broader objectives to deepen financial inclusion and make Kenya’s capital markets more accessible.
The Road Ahead: First Close and Future Projections
The fund is expected to reach its first close with an initial target of $100 million. This goal reflects both the potential and the demand for innovative financing solutions in Kenya. As MSMEs gain access to more affordable credit, they are likely to experience enhanced growth prospects, allowing them to reinvest in their businesses, expand operations, and hire more employees.
To fully achieve its target of $300 million, the fund will require continued support from both local and foreign investors. The British High Commission, FSD Africa, and Kenyan financial institutions are optimistic that the fund’s de-risked structure and attractive returns will appeal to a broad base of investors, creating a win-win situation for all stakeholders involved.
Why This Fund Matters for Kenyan Investors
For Kenyan investors, particularly pension funds, the Listed SME Debt Fund represents an opportunity to invest in a new asset class that combines stable returns with the potential for high social impact. Given the volatility of traditional markets and the challenges of inflation, diversifying into alternative assets such as this fund can help institutional investors manage risk while contributing to economic development.
The fund’s focus on de-risking investments in MSMEs adds an additional layer of attractiveness for investors. By investing in this fund, they are not only diversifying their portfolios but also contributing to Kenya’s economic resilience and helping bridge the financing gap faced by local businesses. This model of impact investing has gained popularity globally and aligns with the shift towards sustainable and socially responsible investment strategies.
A Path to Sustainable Economic Growth
The SME Debt Fund is expected to have a profound impact on Kenya’s socioeconomic landscape. By easing access to capital, it will support a wave of entrepreneurship and innovation that could help shape Kenya’s economy in the coming years. As MSMEs grow, they will not only drive job creation but also enhance productivity across various sectors, including agriculture, manufacturing, and services.
Moreover, the fund’s inclusive approach, targeting underserved populations, will help bridge economic divides, promoting more equitable growth across Kenya. By supporting businesses led by youth, women, and persons with disabilities, the fund will contribute to a more balanced economic recovery in a post-pandemic world.
The British High Commission’s $5.2 million funding support to Kenya’s Listed SME Debt Fund marks an exciting new chapter for Kenya’s MSME sector. With FSD Africa at the helm, the fund is poised to transform access to credit for Kenyan businesses, offering a lifeline to thousands of MSMEs while promoting job creation, inclusivity, and sustainable economic growth.
This investment signals a renewed commitment from the UK to strengthen Kenya’s financial infrastructure, creating long-term value for both investors and the country’s entrepreneurial ecosystem. As the fund approaches its first close and scales towards its $300 million goal, it holds the promise of unlocking vast potential in Kenya’s small business sector—an outcome that will resonate across households, communities, and the entire economy.
