Excerpt : The size of the fund payout does not benefit MSMEs. The fund is akin to state-run Fuliza..

Monday, November 21, 2022


This Government should listen to Kenyans. It should not develop thick skin, yet. And it should not be elitist in its policies. It’s the only way they can be in touch with reality on the ground and avoid pitfalls of Uhuru administration. A month ago, I wrote in this column that the Hustlers Fund should be a grant, not a loan and drew parallels with similar funds targeting small businesses in the US and Europe among others. I also explained why many of the existing affirmative action programmes targeting this sector did not work. 

National Treasury had released draft regulations of the ‘Financial Inclusion Fund’ whose purpose shall be to ‘promote financial inclusion through expanding access to credit by persons, proprietors, micro, small and medium enterprises, chamas, table banking groups, groups, SACCO societies, associations and start-ups for economic growth and job creation’. The regulations provide for penalties on misuse of the fund, and recovery by debt collectors on defaulters.

Even before public hearings on the regulations are complete, Cabinet released terms of the loan, calling it a ‘revolutionary financial product to liberate the people of Kenya from the bond of predatory lending’. Sh 500 to sh 50,000 loan at 8% interest, with a compulsory 5% saving amount is unlikely tocreate a ‘momentum for sustainable development’ as suggested, and is not revolutionary either.  

The shs 50 billion fund was meant to be a game-changer for Micro, Small & Medium Enterprises (MSMEs). It started off as a grant during the campaigns, and mutated fast to be a conditional loan. To many, it appears too little and much ado about nothing. A new boda boda costs sh 80,000 and above. Can it fund start-ups? No! For sure, it can buy a half dozen quality wheelbarrows, and can help mama mboga stock up on her vegetables. If the borrowers were given the maximum of sh 50,000 which is highly unlikely, only a million Kenyans at most will benefit.

At best, the fund will compete with Fuliza and other digital credit providers on the interest rate. Fuliza overdraft charges sh 25 daily for loans of sh 25,000 to sh 70,000, which is about 18% p.a. But Fuliza has simplicity. The access is fast, one can take several loans at a time, their upper limit is up to sh 70,000 and there are no debt collectors, or threats of fines.  Small businesses usually take these loans for a short time, and are used to meet essential demands. In 2021, Fuliza disbursed sh 585 billion to 1.7 million users. The default rate is nil as the debt is recovered instantly when the customer’s Mpesa wallet receives money. Even with the high charges, default rate was also low with KCB Mpesa and M-Shwari, with average loan sizes of sh 6,000.

Is this a Government-run Fuliza, albeit cheaper? It appears so. The similarity with existing digital credits is pretty obvious. The size of the loans speaks to the people targeted by this fund. And it is not MSMEs. The table below shows the statutory definition of an MSME, in terms of their sizes. It would be difficult to imagine any of them would find the proposed fund useful. Any fund that excludes the 7.5 million registered MSMEs would thus be misplaced. Clearly, it does not appear to achieve objectives outlined in Treasury’s regulations.

According to KIPPRA, 72 per cent of MSMEs funding is family income or personal savings and they say most collapse because they ‘fail to demonstrate creditworthiness or lack sufficient cashflow to sustain loan repayments’ due to inability to provide ‘required documentation such as bank statements, audited financial statements, and financial projections’.  

In 2021, the Government merged several affirmative action funds to create a Sh 2.5 billion Biashara Kenya Fund, merging the Women Enterprise Fund (WEF), Youth Enterprises Development Fund (YEDF) and Uwezo Fund, to provide loans at 6% interest rate, through registered groups to marginalised segments of the society such as women, youth and persons with disabilities. In December, 2020 the Government set up the Credit Guarantee Scheme (CGS) to support MSMEs in securing credit from several commercial banks. KES 3.0 billion was allocated to CGS, allowing the participating commercial banks to lend at least KES 12.0 billion to qualifying MSMEs. In all these funds, the loan amount,  bureaucracy, processing and registration requirements as well the high cost of finance was a major hindrance to its successful uptake. 

According to CBK, MSMEs are a significant source of funding for the banking industry, accounting for 14 percent and 57 percent of total customer deposits held in commercial banks and microfinance banks, respectively. Lending to MSMEs earned Ksh.70.8 billion for the banking industry in 2020, representing 12.2 percent of the total income generated from lending by the banking industry. Total loans taken by MSMEs from the banking sector were about 22% of the total loan portfolios of the banks. Non-performing loans (NPLs) by SMMEs were also proportional, at 22% of the total. Yet, commercial banks attach a higher risk profile to SMMEs although their default rate is lower than big businesses. 

CBK says SMMEs cannot access credit mainly due to ‘the inability of many prospective lenders to ascertain with confidence the true ownership of many assets, both tangible and intangible, that could serve as collateral’ and has urged the Government for ‘concerted efforts between financial market participants and Government agencies towards the identification, deployment and maintenance of appropriate technologies that will promote the eligibility of a wider range of assets as loan collateral.’ Therein lies the difficulty by small businesses in accessing credit.

It's not just MSMEs that will feel excluded. Muslims are equally excluded by interest-bearing loans.


Table 1: Statutory Definition of MSMEs



Annual Turnover 

No. of Employees 

Assets/ Investment 







≤ 500,000 



Small All 









Service / Farming 







As determined by Cabinet Secretary 

Source: Micro and Small Enterprises Act (2012) 


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