Small businesses, bolstered by expanding access to credit, are emerging as critical pillars of economic resilience across Kenya’s 47 counties, providing a crucial buffer against unemployment and uneven regional development in an economy where formal sector opportunities remain limited for millions of citizens. Data from the Kenya National Bureau of Statistics’ Gross County Product 2025 report reveals that participation in micro, small, and medium enterprises (MSMEs) plays a decisive role in job creation and income generation, particularly in counties where large corporations and government institutions provide relatively few employment opportunities.
The trend is most pronounced in rural and peri-urban counties, where self-employment through small business operations frequently substitutes for salaried positions that would otherwise be concentrated in major urban centers. This shift toward entrepreneurship, supported by improved credit access through both traditional financial institutions and an expanding network of digital lenders, is fundamentally reshaping Kenya’s economic landscape and redistributing economic opportunity beyond the historical concentration in Nairobi and a handful of other major counties.
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National Credit Uptake Demonstrates Growing Financial Inclusion
Nationally, the share of adults with loans rose to 64% in 2024, up significantly from 60.8% in 2021, according to data compiled by the Central Bank of Kenya and financial sector stakeholders. This substantial increase in credit penetration reflects both supply-side improvements—more lenders offering more diverse products—and demand-side factors as Kenyans increasingly recognize credit as a tool for managing cash flow, investing in income-generating activities, and smoothing consumption during periods of economic stress.
Counties with higher MSME participation generally report stronger credit uptake, creating a virtuous cycle where access to financing enables traders to restock inventory, farmers to purchase inputs and smooth cash flows between planting and harvest seasons, and informal enterprises to expand operations, hire additional workers, or upgrade equipment. The correlation between MSME density and credit access is particularly evident in counties with vibrant commercial sectors, well-developed agricultural value chains, or proximity to major consumer markets.
By June 2025, licensed digital lenders had disbursed 5.5 million loans worth KSh 76.8 billion, increasingly filling financing gaps left by traditional banks, particularly for micro and small enterprises that lack the collateral, financial records, or minimum transaction sizes that conventional banks require. These digital platforms, operating primarily through mobile applications and USSD codes accessible on basic feature phones, have revolutionized credit access for millions of Kenyans who were previously excluded from formal financial services.
Digital Lending Formalization Accelerates
Late in 2025, the Central Bank of Kenya licensed 42 new Digital Credit Providers (DCPs), pushing the total number of approved digital lenders in the country to 195. This announcement, made on December 30, 2025, came just three months after the licensing of 27 DCPs in September 2025 and followed the approval of 41 additional providers in June, marking the Central Bank’s steady and determined push to formalize a sector that was once dominated by unregulated applications and predatory lenders operating with minimal oversight or accountability.
The regulatory framework governing digital lenders was introduced in 2022 in response to widespread public complaints about unregulated digital credit providers accused of charging exorbitant and often undisclosed interest rates, employing harassment and intimidation during debt collection, and misusing personal data accessed through mobile device permissions. The licensing and oversight of DCPs, as CBK has repeatedly emphasized, were prompted by these serious public concerns over predatory practices.
For borrowers, the expanding roster of licensed digital lenders signals more choice in the marketplace but also clearer and more enforceable rules around how digital loans should be offered, priced, and recovered. Licensed DCPs must meet strict requirements including transparency around loan costs and fees, ethical debt collection practices that prohibit harassment and intimidation, robust data privacy protections, and comprehensive anti-money laundering checks. The regulator has made clear that licensed lenders must prove their funding sources are legitimate, avoid abusive recovery tactics, and face restrictions on how and when they can list borrowers on credit reference bureaus.
According to the Central Bank, as of November 2025, licensed DCPs had issued 6.6 million loans valued at KSh 109.8 billion, underlining just how central digital lending has become to Kenya’s economy and to the daily financial lives of millions of citizens. These figures represent only licensed providers operating within the regulatory framework; unregulated lenders, while diminishing in number and market share, continue to operate illegally, prompting CBK to urge the public to report unlicensed DCPs through official channels.
Digital Credit Providers are financial institutions that offer loans and credit services through digital channels such as mobile applications, websites, and USSD codes. Loan products available through these platforms include education loans enabling students and parents to finance school fees, development loans for home improvements or business expansion, short-term personal loans for emergency expenses, asset financing for equipment or vehicle purchases, and business loans supporting working capital needs or inventory purchases.
CBK has received more than 800 applications since launching the DCP licensing framework in March 2022, indicating intense interest in Kenya’s digital lending market. The licensing process involves rigorous review focusing on business model viability, comprehensive consumer protection measures, and the fitness and propriety of proposed shareholders, directors, and management personnel. Many applications remain at various stages of the review process, with CBK urging applicants to submit outstanding documentation promptly to enable completion of evaluations.
Geographic Concentration of Economic Activity Persists
The Gross County Product 2025 report reveals that economic activity in Kenya remains heavily concentrated in a small number of counties, creating both opportunities and challenges for national development. Four counties—Nairobi, Kiambu, Nakuru, and Mombasa—contribute almost 50% to the country’s Gross Domestic Product, with Nairobi leading at 27.4% between 2020 and 2024.
“The results indicate that economic activity remains concentrated in a few counties. For instance, Nairobi city county accounted for the largest share of Gross Value Added (GVA) at 27.4% in 2024, followed by Kiambu (5.5%), Nakuru (5.2%), and Mombasa (4.8%),” the Kenya National Bureau of Statistics report states. “Together, these four counties contributed about 42.9 per cent of the national GVA in 2024.”
This concentration reflects several factors including infrastructure advantages, proximity to major ports and transportation networks, access to larger consumer markets, concentration of financial services and corporate headquarters, and historical patterns of investment and development. Nairobi’s dominant position as the national capital, regional business hub, and center of Kenya’s financial services industry explains its outsized contribution to national GDP. The city hosts the headquarters of most major corporations, international organizations, and financial institutions, creating dense networks of economic activity and employment opportunities.
Kiambu County benefits from its proximity to Nairobi, effectively functioning as part of an extended metropolitan region that includes manufacturing facilities, agricultural enterprises producing for urban markets, residential developments for Nairobi’s workforce, and logistics operations serving the capital. Nakuru’s strategic location along the major transportation corridor connecting Mombasa port to Uganda, Rwanda, and beyond, combined with its agricultural productivity and growing manufacturing sector, supports its position as Kenya’s third-largest county economy. Mombasa, as Kenya’s principal port and the gateway for imports and exports serving East and Central Africa, generates substantial economic activity through port operations, logistics, tourism, and related services.
The report notes that GCP per capita in Nairobi, Mombasa, Nyeri, Embu, and Nakuru counties exceeded the KSh 309,460 national average, indicating higher average incomes and living standards in these economically dynamic counties. However, this geographic concentration also means that vast disparities exist between the economic opportunities available in these leading counties versus those in peripheral regions, particularly in northern Kenya and other marginalized areas.
Regional Contrasts in MSME Participation and Credit Access
County-level data reveal sharp regional contrasts in both small business participation and access to credit. Kilifi, Kwale, and Kiambu posted some of the highest proportions of adults engaged in small businesses, though the nature and scale of these enterprises varies considerably across these counties based on local economic structures and opportunities.
Along the Coast, in counties like Kilifi and Kwale, MSMEs are closely tied to agriculture, with enterprises engaged in farming, fishing, and processing of agricultural products; tourism, with businesses providing accommodation, food services, tour operations, and craft production; and trade, with shops, market stalls, and wholesale operations serving local communities and visitors. The coastal region’s MSME sector reflects the area’s comparative advantages in beach tourism, tropical agriculture, and access to marine resources.
Kiambu, by contrast, benefits from its proximity to Nairobi’s vast consumer markets and sophisticated logistics networks. Small businesses in Kiambu can easily access Nairobi’s customers, source inputs from city-based suppliers, and leverage the capital’s infrastructure and services. This proximity supports diverse MSMEs ranging from manufacturing and agro-processing to retail and services, many of which operate as part of value chains serving Nairobi’s economy.
In these areas where MSME density is high, small enterprises have become the primary drivers of household incomes and local demand, creating employment not only for business owners but for workers they hire, generating income that circulates through local economies as it is spent on goods and services. The multiplier effects of robust MSME sectors are evident in more dynamic local economies, better-provisioned markets, and higher overall economic activity.
Northern counties such as Wajir and Mandera, however, continue to register low levels of both small business participation and credit access, reflecting multiple overlapping challenges. Ongoing insecurity in parts of northern Kenya, related to both inter-communal conflicts and cross-border violence, discourages investment and makes it difficult for businesses to operate reliably. Sparse and widely dispersed populations create thin markets where businesses struggle to achieve sufficient scale. Limited financial infrastructure, with few bank branches and underdeveloped digital financial services networks, restricts access to credit even for entrepreneurs who might otherwise qualify.
These northern counties also face infrastructure deficits in roads, electricity, and telecommunications that increase business operating costs and limit the range of viable enterprises. The combination of these factors creates a vicious cycle where limited economic activity constrains credit access, which in turn limits entrepreneurship and business expansion, perpetuating economic marginalization.
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Sector Contributions and Agricultural County Performance
According to the KNBS report, between 2023 and 2024, the share of the national economy increased in Murang’a, Bungoma, Embu, Turkana, Siaya, Taita Taveta, Garissa, and Mandera counties, suggesting improving economic performance in these diverse regions. However, the report also notes that some counties experienced slower growth due to climatic variability affecting agricultural production, infrastructure limitations constraining business expansion and market access, and narrow production bases that leave counties vulnerable to shocks affecting specific commodities or sectors.
Meru County’s proportion of the national economy increased from 3.4% in 2023 to 3.5% in 2024, solidifying its position as Kenya’s richest agricultural county with an impressive 8.1% contribution to the agricultural sector nationally. Meru’s agricultural success reflects favorable agro-ecological conditions, strong farmer organization and cooperative structures, diversified production including tea, coffee, miraa, dairy, and horticulture, and relatively good infrastructure connecting farms to markets.
Between 2023 and 2024, Murang’a and Bungoma’s contributions to the national economy each increased from 1.9% to 2.0%, while Uasin Gishu’s share rose from 2.5% to 2.6%. These marginal increases, while modest in percentage terms, represent meaningful improvements in economic output and suggest that county-level development initiatives, agricultural improvements, and expanding MSME sectors are generating measurable results.
The MSME Landscape and Financing Challenges
Kenya’s MSME sector is vast and economically critical. The Kenya National Bureau of Statistics estimates that there are approximately 7.4 million MSMEs in Kenya, employing over 14.4 million Kenyans across all sectors of the economy. These micro and small businesses contributed about 33.8% to national GDP in initial assessments, though more recent estimates suggest the sector’s contribution has increased to approximately 40% as the sector has expanded and its economic importance has grown.
The MSME size distribution is highly skewed toward micro-enterprises. According to government data analyzed in the Draft MSME Policy 2025, 92.2% of licensed establishments are micro, employing between 1 to 9 employees, while all unlicensed businesses fall into the micro category. Small establishments account for 7.1% and medium enterprises just 0.7%, highlighting what development economists call the “missing middle”—a gap in the transition from micro to small and from small to medium enterprises that limits economic transformation and job creation.
This “missing middle” phenomenon suggests that significant constraints prevent micro-enterprises from growing into small enterprises and small enterprises from graduating to medium scale. These constraints include limited access to adequate financing, inadequate managerial and technical skills, difficulty accessing markets beyond immediate localities, regulatory compliance burdens that increase with formalization, and competition from larger, more established firms. Addressing these constraints is essential for enabling MSMEs to grow, create more and better jobs, and contribute more substantially to economic development.
Despite their crucial economic role, MSMEs face persistent challenges in accessing financing. According to a 2022 CBK FinAccess Survey, MSME lending generated KSh 105.1 billion for banks, yet this represents a relatively modest share of total bank lending given MSMEs’ dominant role in employment and economic activity. The proportion of the MSME loan portfolio to the total banking sector loan book stood at 21.3% as of December 2022, compared to 20.9% at the end of 2020, indicating only marginal growth in banks’ willingness to lend to this crucial sector.
Collateral requirements continue to be identified as a major barrier for MSMEs in accessing formal credit. Many small businesses lack titled land, substantial fixed assets, or other forms of collateral that banks traditionally require to secure loans. While the Movable Property Security Rights Registry (MPSR) allows MSMEs to use assets such as inventory, equipment, vehicles, or accounts receivable as collateral, awareness of this mechanism remains limited and banks have been slow to fully embrace movable assets as sufficient security.
A KNBS survey from 2016 indicated that 71% of MSMEs who borrowed working capital reported receiving inadequate loans—amounts insufficient to fully meet their needs—forcing them to either scale back their business plans or seek additional, often more expensive, financing from informal sources. This credit rationing constrains business growth and limits the sector’s full economic potential.
For licensed MSMEs, 78.6% of credit came from commercial banks (56.1%), microfinance institutions (12.5%), and SACCOs (10.0%). For unlicensed businesses, the pattern was similar with 74.4% of loans sourced from commercial banks, Rotating Savings and Credit Associations (ROSCAs), and MFIs. Significantly, 80.6% of MSME start-ups rely on family or own funds as the primary source of start-up capital, reflecting both limited access to formal credit for new ventures and cultural preferences for bootstrap financing.
Innovations in MSME Financing
Financial institutions are increasingly innovating to better serve the MSME market. Banks are customizing business loan products with features tailored to small business needs, creating crowdfunding and peer-to-peer lending platforms that connect MSMEs with individual investors, offering green financing for environmentally sustainable businesses, and providing expert relationship managers to guide MSMEs in financial decision-making.
Some banks are accepting non-traditional collateral such as inventory and future receivables to secure loans for MSMEs, addressing one of the most significant barriers these businesses face in accessing credit. “This approach helps businesses that may not have significant fixed assets to obtain necessary financing,” notes the CBK’s analysis of sector innovations.
Digital financial services, particularly mobile money platforms, have dramatically expanded financial inclusion in Kenya. According to KNBS assessments, increased financial inclusion can be directly attributed to financial innovations such as mobile banking and other digital technologies that make accessing money and credit easier. Mobile money accounts, which most adult Kenyans now possess, provide transaction histories that can be analyzed to assess creditworthiness, even for individuals who lack traditional banking relationships or credit histories.
Alternative data sources including mobile payment records, utility payment histories, and social network data are enabling previously unbanked MSMEs to build credit profiles that lenders can evaluate. These innovations promote financial inclusion by expanding credit access to previously underserved segments, including women-owned businesses, youth entrepreneurs, and rural enterprises that traditional credit assessment methods would automatically exclude.
Persistent Inequality in Financial Access
Despite overall improvements in financial inclusion, certain populations continue to lag behind. Women face higher rates of financial exclusion, with 12.4% of women financially excluded compared to 10.8% of men, resulting in fewer women having access to formal financial products and services. This gender gap in financial access translates directly into constraints on women’s entrepreneurship and economic empowerment.
Educational disparities also drive financial exclusion. Kenyans without formal education have the highest rates of financial exclusion at 23.4%, compared to just 1.2% for those with tertiary education. This correlation reflects both the direct effects of education on financial literacy and understanding of formal financial products, and the indirect effects through education’s impact on employment, income levels, and the social networks that facilitate financial access.
Geography remains a powerful determinant of financial inclusion. Rural Kenyans are more than twice as likely to be financially excluded (14.7%) compared to their peers living in urban areas (6.2%), reflecting both supply-side factors—fewer bank branches and ATMs in rural areas—and demand-side factors including lower and more variable incomes, lower financial literacy, and different cultural attitudes toward formal financial services.
Policy Interventions and Future Directions
The Government of Kenya has introduced several initiatives designed to promote MSME growth and enhance credit access. Credit Guarantee Schemes aim to reduce risk for lenders by providing partial guarantees for MSME loans, making financial institutions more willing to lend to higher-risk borrowers. The Movable Property Security Rights Registry allows MSMEs to secure loans using movable assets rather than only traditional collateral like land. Gender-inclusive financing initiatives work to bridge the credit gap for women-led MSMEs through both targeted loan products and broader efforts to address the structural barriers women entrepreneurs face.
Looking ahead, sustaining and accelerating MSME-driven economic growth across Kenya’s counties will require continued innovation in financial services, ongoing regulatory improvements that balance consumer protection with market development, strategic infrastructure investments that connect peripheral regions to economic opportunities, and targeted support for the missing middle to enable micro-enterprises to scale up and create more and better jobs.
The expansion of digital credit, if properly regulated and directed toward productive uses, can continue to democratize access to financial services and support entrepreneurship in communities that traditional banking has underserved. However, ensuring that increased credit access translates into sustainable economic development rather than problematic over-indebtedness will require vigilant oversight, ongoing financial education, and products genuinely designed around MSME needs rather than simply maximizing lender profits.
Conclusion: Small Businesses as Economic Stabilizers
The data from the Gross County Product 2025 report and related assessments of Kenya’s MSME sector paint a picture of small businesses serving as crucial economic stabilizers and opportunity creators across the country’s diverse counties. In an economy where formal sector job creation has lagged behind population growth and where geographic disparities in economic opportunity remain stark, MSMEs provide livelihoods for millions of Kenyans and drive local economic activity that would otherwise not exist.
The rise in credit access—from 60.8% of adults in 2021 to 64% in 2024—reflects both expanding supply through digital lenders and traditional financial institutions, and growing demand as Kenyans increasingly view credit as a tool for economic advancement. The formalization of the digital lending sector through CBK’s licensing of 195 digital credit providers represents a critical regulatory achievement that protects consumers while preserving the innovation and accessibility that made digital lending transformative.
However, significant challenges remain. The missing middle problem constrains economic transformation by limiting MSME growth beyond micro scale. Persistent disparities in credit access based on gender, education, and geography perpetuate broader patterns of inequality. Northern and other marginalized counties continue to lag far behind economic leaders like Nairobi, Kiambu, Nakuru, and Mombasa. And the concentration of nearly half of national economic output in just four counties, while reflecting legitimate economic advantages these counties enjoy, also represents a vulnerability for national economic resilience and a development challenge for more equitable growth.
The path forward requires maintaining the momentum of financial sector innovation while strengthening consumer protections, expanding infrastructure and services to underserved regions, providing targeted support for enterprise growth and formalization, and ensuring that credit flows to productive uses that generate sustainable income streams rather than simply enabling consumption that creates debt burdens. As Kenya’s counties navigate the complex challenges of economic development in an era of climate change, technological disruption, and global economic uncertainty, the resilience and adaptability of the MSME sector—and the credit access that enables it—will remain central to shared prosperity and inclusive growth.
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By: Montel Kamau
Serrari Financial Analyst
12th January, 2026
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