- Experts urge Kenya to deepen capital markets to unlock long term financing for SMEs.
- SMEs remain underserved as heavy reliance on bank lending limits access to affordable growth capital.
- Pension funds and institutional investors urged to channel more domestic savings into productive private sector investments instead of government securities.
Industry experts have called on Kenya to accelerate the development of its capital markets and introduce innovative financing instruments to unlock long-term funding for small and medium-sized enterprises (SMEs). They warned that excessive reliance on bank lending continues to starve one of the country’s most important economic sectors.
Speaking during a town hall discussion at Strathmore University, the experts said SMEs contribute a significant share of Kenya’s Gross Domestic Product (GDP) and remain a major source of employment.
Despite their significance, many businesses continue to face difficulties accessing affordable, long-term financing needed to expand operations and invest in growth.
The panel observed that while Kenya’s financial sector has experienced remarkable growth over the past decade, a large proportion of domestic savings remains invested in government securities instead of productive private-sector ventures.
Sameer Raja, Assistant General Manager and Investment Advisor at I&M Capital Limited, said smaller enterprises remain among the most underserved segments of Kenya’s financial system because many lack the collateral and stable cash flows required by conventional lenders.
“The biggest financing gap today falls within the SME sector because many businesses lack sufficient collateral or cash flows to qualify for traditional lending,” Raja said.
Raja noted that although digital lending platforms have expanded access to credit for many entrepreneurs, the short repayment periods and high borrowing costs make such facilities unsuitable for businesses seeking sustainable long-term growth.
Charles Miano, Senior Portfolio Manager at Nabo Capital, said Kenya already possesses one of the largest pools of long-term domestic savings in East Africa. However, much of the capital continues financing government borrowing instead of supporting productive investments in the private sector.
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He called on policymakers and regulators to accelerate the introduction of innovative financial instruments, including securitisation and other asset-backed securities. This would broaden financing options for businesses while providing investors with diversified long-term investment opportunities.
“A significant share of available investment capital is still flowing into government securities instead of financing productive sectors of the economy,” Miano said.
He explained that securitisation would allow future income streams from infrastructure projects and other revenue-generating assets to be packaged into investable securities, creating alternative funding sources beyond bank credit.
The panel also highlighted the importance of maintaining a stable and predictable regulatory environment to support investor confidence and encourage greater capital market participation.
Onesmus Kiema, Associate Director for Tax and Regulatory Services at KPMG East Africa, said investors require certainty that tax and regulatory policies will remain consistent throughout the lifespan of their investments.
He noted that governments must strike a balance between raising revenue and maintaining a business environment that encourages investment and economic expansion.
Kiema added that greater tax certainty, policy consistency, and improved transparency in the management of public resources would strengthen investor confidence and encourage more long-term capital to flow into productive sectors.
The experts concluded that deepening Kenya’s capital markets and directing more institutional savings toward private-sector investment would help bridge the country’s persistent SME financing gap, stimulate enterprise growth, create jobs, and reduce overreliance on bank lending.
By Bernard Magada
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