Towards a framework for sustainable bank financing of SMEs in Kenya

Odongo Kodongo

No 105, KBA Centre for Research on Financial Markets and Policy Working Paper Series from Kenya Bankers Association (KBA)

Abstract: Data from the Central Bank of Kenya show that, in the 12 months to December 2024, the banking sector generated approximately 35.3% of its overall lendingrelated income from the MSME sector, almost half of which was from small and microenterprises (SMEs). During the same period, banks and microfinance banks extended less than 20% of their combined credit to SMEs. This paper explores reasons for the suboptimal lending by banks to SMEs using an analytical framework that draws from the literature and lending practices in different contexts. The major reasons for suboptimal SME lending by banks include perception of higher risks and inadequate institutional arrangements. The paper makes several recommendations at the policy level and at the bank level to address the identified problems.

Keywords: Small and microenterprises; banks; credit; Kenya (search for similar items in EconPapers)
Date: 2026
New Economics Papers: this item is included in nep-afr, nep-cob, nep-ent and nep-mfd
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:kbawps:340182

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