Unlocking Kenya's next phase of growth through powering SMEs

Kenya’s private sector has long been celebrated as the heartbeat of the nation’s economy, thanks to its dynamic, resilient and innovative nature. From manufacturing to financial services, it continues to power jobs and investment even in tough times.

Yet beneath that resilience lies a difficult truth: growth has not been equally shared. Many businesses, especially small and medium-sized enterprises (SMEs), remain highly exposed to shifting market conditions and unpredictable policies.

Kenya’s economy grew by 4.7 per cent in 2024 (KNBS, 2025), supported largely by stronger performance in agriculture, fintech, and mobile money.

According to the African Development Bank Group’s 2025 Kenya Country Focus Report, inflation eased from 7.7 per cent in 2022 to 4.5 per cent in 2024, helped by better food supply, a 16 per cent strengthening of the shilling, and lower global oil prices.

However, access to affordable credit remains a significant challenge. The 2024 Kepsa SME Policy Index Report indicates that private sector credit growth fell to four per cent by June 2024, down from 13.9 per cent the previous year, as many businesses struggled to borrow under tighter monetary policy.

The impact has been most severe for SMEs, which make up over 90 per cent of jobs and about 40 per cent of the gross domestic product (GDP).

To keep growth on track, Kenya needs policy stability and predictability. Businesses thrive where rules are clear and consistent and not constantly changing.

The next wave of progress will come not from more regulation, but from better, simpler enforcement of existing ones.

Kenya’s reputation as the “Silicon Savannah” continues to shine. According to a report by Ken Research (2024), the country’s mobile money and fintech ecosystem is now valued at over $2 billion (Sh260 billion).

Consumer protection

It is transforming how small businesses access finance and reach customers through innovation in logistics, mobile payment solutions, expansion of financial inclusion, agriculture and health tech.

These fintech innovations are helping firms become more efficient and resilient than ever before.

Still, digital finance has its pitfalls. The 2024 FinAccess Household Survey found that 16.6 per cent of the borrowers defaulted on their loans, up from 10.7 per cent in 2021.

That points to the need for stronger consumer protection and more responsible lending.

True innovation means pairing technology with trust, ethics, and inclusivity.

SMEs are Kenya’s real growth engine, though many remain stuck in informality. This limits their access to credit, government programmes, and larger contracts.

Initiatives like the Credit Guarantee Scheme and digitised business registration are helping, but many entrepreneurs are still not aware of them or find the processes cumbersome.

Unlocking SME potential requires stronger links with large corporates through supplier development, mentorship, and local content policies that genuinely empower Kenyan firms.

A study by Beck, Demirgüç-Kunt, and Levine (2005) shows that countries with larger and more dynamic SME sectors tend to experience faster economic growth and greater reductions in poverty.

However, the study also notes that SME growth is most closely associated with better outcomes in countries with well-functioning financial systems, suggesting that finance plays a central role in enabling SMEs to drive broad-based economic progress.

Therefore, investing in SMEs isn’t charity; it’s sound economics.

Kenya’s next chapter depends on how well its businesses adapt to a fast-changing global economy. The shift toward renewable energy, sustainable manufacturing, and environmental, social and governance (ESG)-aligned investment is no longer a side agenda; rather, it’s becoming central to competitiveness.

The Capital Markets Authority (2024) reports growing demand for sustainability-linked bonds and ESG reporting, its promotion of green bonds and other sustainable financial instruments.

This is a clear signal that profitability and purpose can, and should, go hand in hand.

In conclusion, the foundations for sustained growth of the private sector’s contribution to economic growth in Kenya are already in motion, with vibrant innovation and a hardworking SME sector.

However, these strengths will only deliver their full promise if matched with bold, coordinated action.

Policymakers must prioritise stability and smarter regulation, financial institutions need to widen access to affordable credit, and corporates should deepen partnerships that help SMEs scale.

The opportunity is right in front of us: with the right choices, Kenya can build a private sector that not only drives growth but lifts more households and businesses into long-term security and success.

-Mercy Mwelu is the GM of Business Development at Jubilee Asset Management while Mercy Kano is a Doctoral Fellow at Strathmore Institute of Mathematical Sciences.