MSMEs credit scheme in sharp decline, misses youth and women targets

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.