Attend any fintech conference or read the latest report about trade financing gaps in developing economies including Kenya and you will notice that the debate is about the same wall: Micro, small and medium enterprises’ struggle to access affordable credit.
We love to point fingers at both our mainstream and alternative financial systems. We accuse commercial banks of being risk-averse, elitist, and detached from the realities of informal trade. We accuse fintechs of predatory lending.
But spend some time analysing and working within the financial ecosystem and you will come to a humbling realisation: while systemic gaps exist, the biggest bottleneck to MSME financing is not always bank rigidity or risk over pricing by fintechs. It is a deficit of institutional structure.
Available estimates indicate that only 1.56 million out of over 7.4 million Kenyan MSMEs are officially licensed or registered.
Globally, no lenders including more risk tolerant fintechs lend on grit, good intentions, or historical hustle. They lend on transparency, predictability, and risk mitigation. Until our MSMEs bridge that psychological and operational divide, any form of timely, affordable and sustainable credit will remain out of reach.
The typical Kenyan enterprise is born out of brilliant survival instincts. When an MSMEs is fighting to put food on the table, any form of governance and financial record keeping can feel like an expensive luxury.
Consequently, millions of businesses operate out of a back pocket. Revenues flow into the same mobile money account used to buy food and pay school fees. Bookkeeping lives in a physical counter book or, worse, entirely in the business owner’s head.
To an owner, this agility is strength. But to a bank’s credit manager or a fintech’s AI powered credit scoring algorithm, this looks like a big black box. With no or weak financial records and no clear legal boundary between the owner and the business, the risk is unquantifiable.
Hence when the loan application lands at the bank or fintech, it is rejected or risk priced so aggressively through short-term, expensive credit facilities that they choke the business anyway.
If we want to move from begging for micro-loans to negotiating growth capital, MSMEs must drive a deliberate culture shift towards formalising and professionalising their businesses. Professionalisation is not about renting a fancy office or rolling out the latest tech platform; it is about institutional hygiene.
First, MSMEs must stop combining personal and business funds. They should open a dedicated business account, route every single shilling through it, and adopt digital tools that generate clean, verifiable cash flow records.
Second, MSMEs must stop viewing tax and business registration and subsequent compliance as unnecessary bureaucracies.
Formalisation is their armor. It transforms their businesses from temporary hustles into legally recognisable counterparties that capital providers can legally partner with. Furthermore, tax registration enables businesses to benefit from tax deduction of expenses incurred in generation of taxable income.
Third, MSMEs must build a baseline management structure to avoid every single business decision requiring their personal thumbprint.
Doing so proves to investors that the business can survive and thrive beyond its owner.
Of course, the burden of culture shift cannot rest solely on the MSMEs navigating our ever challenging macroeconomic environment. The financial sector must continue to evolve past rigid, legacy credit appraisal models designed for businesses and individuals with regular and structured incomes.
We need more relationship-driven credit assessment, innovative productive or purpose driven financing, and embedded financial tools that meet micro-entrepreneurs where they are. Institutions like Juhudi Kilimo are already putting this into practice through asset-financing models built specifically for rural realities.
Kenya’s economic future won’t be secured by wishful thinking; it will be built by millions of MSMEs brave enough to step out of the shadows of informality. When we treat professionalization not as a bureaucratic chore, but as the master key to institutional scale, we stop chasing survival and start building legacies.
The writer is the incoming CEO of Juhudi Kilimo, a microfinance institution focused on improving the livelihoods of Kenyan rural smallholder farmers and micro- entrepreneurs. He can be reached via [email protected]
