A flagship government programme that was designed to
provide affordable credit to small businesses is showing signs of severe
strain.
Treasury disclosures show how new loans are plummeting,
with the initiative consistently failing to meet targets for supporting women
and youth-owned enterprises.
The Annual Performance Report for the MSME Credit
Guarantee Scheme (CGS) for the 2024-25 financial year, laid before the National
Assembly, reveals how the initiative is grappling with a slowing trend.
It further highlights significant operational
challenges, even as the government moves to overhaul its structure entirely,
which could cloud President William Ruto’s efforts to boost youth-run
businesses and startups.
While the scheme has disbursed a cumulative Sh6.6
billion to 4,315 businesses since its launch in 2020, its performance in the
most recent financial year has sharply declined.
Between July 2024 and June 2025, only 194 businesses
received loans worth Sh308.2 million under the scheme's guarantee, which is a
fraction of its earlier activity.
The report attributes the low absorption rate to ‘the
narrow eligibility criteria for borrowers and the prevailing macro-economic
environment’.
This a veiled reference to the high cost-of-living and
tough business conditions that have characterised the past year.
Perhaps more telling is the scheme's failure to meet its
objectives of ensuring that at least 30 per cent of the guaranteed facilities
go to enterprises owned by women, youth, and persons with disabilities (PWDs).
However, in the 2024-25 period, this category received a
meagre 11.5 per cent of the loans, a significant drop from the 22.9 per cent achieved
in the previous year.
A further breakdown reveals that out of the 194 loans
disbursed, only one was awarded to a youth-owned enterprise, representing a
mere 0.5 per cent.
Businesses owned by women received 21 loans (11 per
cent), while no loans were recorded for enterprises owned by persons with
disabilities.
"This may be attributed to smaller volumes of
credit facilities that this category borrows on average," the report
notes, pledging that the National Treasury will work to increase the numbers.
The report also highlights the growing financial risks
associated with the scheme. As of June 30, 2025, out of 778 active loan
facilities, 328 were classified as impaired.
These are loans categorised as "Watch,"
"Substandard," "Doubtful," or "Loss," meaning
they are at high risk of default or are already in arrears.
The total outstanding principal for the risky loans was
Sh184.4 million at the time of the review, with a corresponding potential
liability of Sh71.9 million for the state-backed scheme.
During the year, the National Treasury paid out Sh1.3
million to seven claims from participating banks, activating the guarantee.
Citing an unsustainable model, Treasury confirms that
the scheme in its current form cannot continue.
It highlights the risk of capital depletion as claims
increase and notes that the scheme relies on staff who are also engaged in
other competing assignments.
In response, the government is pushing ahead with a
major transition which would see the CGS converted into the Kenya Credit
Guarantee Company (KCGC), and hand the government minority shares.
The move, officials hope, will enhance sustainability,
unlock more private sector lending through specialised products, and improve
operational focus.
Other challenges identified include the widespread
informality of MSMEs, many of which lack the required tax compliance
certificates, and confusing definitions of what constitutes a micro, small, or
medium enterprise, which complicates reporting and targeting.
Despite the worrying annual figures, the National
Treasury has expressed optimism.
Cabinet Secretary John Mbadi stated the scheme
highlights "how the Government has leveraged on private sector resources
to improve access to credit for MSMEs."
“It is expected that the Company will unlock more
private sector lending through partnerships and sector-specific guarantee
products,” the CSs said.
In the fiscal year 2024-25, CGS recorded beneficiaries
in 30 counties, accounting for 64 per cent of the total 47 counties in the
country, with high concentration in Nairobi (83), Mombasa (18), and Kiambu (9).
INSTANT ANALYSIS
The key initiatives going forward are the
operationalisation of the new Kenya Credit Guarantee Company and the onboarding
of financial institutions for a dedicated Rural Credit Guarantee Scheme. The
success of these new entities will be critical in determining whether this
multi-billion-shilling intervention can truly overcome its current challenges
and deliver on its promise to the backbone of the country’s economy.
