Banks extended Sh424.67 billion in fresh loans to small businesses in the nine months to September 2026, surpassing last year’s lending as Equity Bank Kenya and Co-operative Bank of Kenya accounted for nearly half of the additional disbursements.
The latest Kenya Bankers Association (KBA) data show the lending to micro, small and medium enterprises (MSMEs) in the review period represented a 30 percent rise from Sh326.5 billion disbursed in the whole of last year, pointing to the rising focus of banks on small firms.
Equity Bank led the market with Sh127.95 billion in new MSME loans, representing 30.1 percent of the industry total, followed by Co-operative Bank with Sh60.26 billion or 14.2 percent.
KCB Kenya ranked third with Sh41.1 billion, followed by Family Bank at Sh31.84 billion and NCBA with Sh28.69 billion.
Stanbic Bank Kenya (Sh25.93 billion), Absa Bank Kenya (Sh21.2 billion), I&M Bank Kenya (Sh20.39 billion), Co-op Bank’s subsidiary Kingdom Bank (Sh15.9 billion) and Diamond Trust Bank (Sh14.34 billion) completed the top 10 lenders.
The 10 largest lenders accounted for Sh387.6 billion, representing 91.3 percent of the industry’s Sh424.67 billion in new MSME loans, highlighting the concentration of small business financing among a handful of banks.
The figures highlight the dominance of a handful of banks in financing small businesses, with the 10 lenders accounting for about 91.3 percent of new MSME credit during the period.
“While the growth in lending shows that banks are increasing their support for small businesses, the next priority is to reach more businesses, including businesses borrowing from banks for the first time and those that have previously struggled to access credit,” said KBA.
“There is also a need for more long-term financing to help businesses buy equipment, expand their operations, invest in productive activities and create jobs.”
The Sh424.67 billion lending puts banks within reach of their Sh500 billion target for new MSME financing in 2026, having achieved nearly 85 percent of the goal in the first nine months.
The expansion in credit comes against a backdrop of declining borrowing costs, with average commercial bank lending rates falling to 14.4 percent in September from 15.07 percent in a similar period last year and 16.91 percent in September 2023.
Private-sector credit growth also improved to the highest level since February 2024 at 10.6 percent in September this year from 10.3 percent a month earlier, pointing to continued recovery in banks’ lending to businesses and households.
Banks are also reporting an improvement in loan repayments, easing the pressure from rising defaults that had constrained lending.
Central Bank of Kenya data shows gross non-performing loan (NPL) ratio declined to 13.9 percent in September this year from 14.8 percent in June and 17.6 percent in August 2025.
A sustained improvement in loan repayment rates could motivate more lenders to increase lending to small businesses, which are often considered riskier borrowers because of limited collateral, informal records and unpredictable cash flows.
Small businesses are key to Kenya’s economy, supporting employment, household incomes and business activity across sectors.
However, access to affordable credit has remained a key constraint as many smaller enterprises struggle to meet conventional bank lending requirements.
Previous disclosures from KBA showed trade and real estate sectors accounted for 42.03 percent of banks’ lending to MSMEs.
KBA said in its State of Banking Industry Report 2026 that despite the strong growth in lending, access to finance continues to be constrained by persistent barriers at the point of credit assessment.
“Analysis of loan application outcomes indicates that ‘inability to pay’ remains the predominant reason for loan rejection, suggesting that affordability and repayment capacity continue to be the primary determinants of credit approval,” said KBA.
The report cited other commonly cited reasons for rejection as inadequate collateral, poor credit scores, inadequate documentation, poor account conduct and classification within higher-risk industries.
Top banks including KCB, Equity, Co-op and NCBA have been attracting cheap credit from development finance institutions for on-lending to small businesses, especially those led by women and youth.
The funding, which often comes at lower interest rates and with longer repayment periods than conventional commercial borrowing, enables lenders to extend more affordable credit to businesses that would otherwise struggle to access financing.
Some of the lenders include the International Finance Corporation, European Investment Bank, Dutch development bank FMO, France’s Proparco, British International Investment, European Bank for Reconstruction and Development and Belgian Investment Company for Developing Countries.
By channelling funds through established banks, development financiers are able to reach thousands of businesses without having to lend directly to individual enterprises.
Many of the development finance lenders are increasingly giving banks specific targets for financing women-led businesses, youth enterprises and other underserved segments in an effort to widen access to credit and promote inclusive economic growth.
Some arrangements also provide technical assistance to help small businesses strengthen financial management, improve governance and develop the capacity to qualify for larger loans.
