Why Kenyan Banks Are Avoiding Small Business Loans
The Shifting Strategy of Kenyan Banks
According to a report from techcabal.com, Kenya’s largest commercial banks have maintained strong profit growth despite broader economic challenges that have put pressure on households and local businesses. A review of five years of audited reports shows that no tier-1 bank in the country recorded an annual net loss during this period. Pre-tax profits for these institutions grew by 18.6% in 2023 and climbed another 17.6% in 2025.
Instead of focusing on traditional lending to small firms, these banks have increasingly turned toward lending to the state. By late 2024, government securities accounted for 27.8% of banking sector assets, while the loan-to-deposit ratio dropped to 70.1%. Banks often find assessing government debt simpler and safer than evaluating thousands of unique small businesses with varied cash flows and credit histories.
Why Formal Credit is Difficult to Access
The report highlights that many small business owners struggle to secure bank financing. Data from the Kenya Bankers Association suggests that roughly three-quarters of small businesses that might benefit from credit never actually apply. Many entrepreneurs expect rejection, find borrowing costs too high, or cannot meet collateral requirements. Furthermore, rising bad-loan costs have forced banks to tighten their credit assessments, as the industry's non-performing loan ratio reached 16.4% in December 2024.
In contrast, banks and telecom companies have found massive success through mobile overdraft facilities like Fuliza. This product uses automated wallet deductions to achieve a 99.6% recovery rate, processing millions of tiny advances—often less than two dollars—that traditional bank loans cannot handle. Additionally, digital credit providers are filling the gap for larger sums, with 281 licensed lenders now serving nearly nine million customers, often at high interest rates that can reach approximately 24% monthly.
What this means for you
For shop and supermarket owners in Nigeria, Kenya, and Ghana, this landscape reveals a significant disconnect. Banks remain cautious about lending to businesses that lack formal accounting records, property collateral, or predictable cash flows. If your shop falls into this category, you are likely to be filtered out of the traditional banking system before your application is even properly considered. You are not alone in this struggle, as the vast majority of your peers face similar barriers.
The rise of digital lenders and mobile overdrafts offers quick cash, but it comes at a premium. Relying heavily on these high-interest facilities can lead to debt distress, which is a growing concern for thousands of households. Understanding that banks prefer stable, collateralized lending means you must focus on improving your formal standing to stand a chance at securing cheaper bank credit.
What to do now
- Formalize your records: Start maintaining clean, daily accounting logs. Banks are far more likely to consider a loan for a business that can prove its revenue through consistent records.
- Build your credit profile: If you use mobile lending, ensure you repay on time to establish a positive history, even if you eventually move toward more traditional bank products.
- Seek collateral alternatives: Since banks prioritize collateral, investigate government or institutional programs that support MSMEs, as they may offer different criteria than standard commercial banks.
- Compare costs: Before taking a high-interest digital loan to stock your shop, calculate the total repayment cost against your expected profit margin to ensure you are not losing money on the deal.