Banks Pocket Sh13 Billion More from MSMEs Driven by Higher Interest Rates – CBK

Commercial banks in Kenya earned nearly Sh13 billion more from micro, small, and medium enterprises (MSMEs) in 2024 compared to 2022, a gain attributed largely to increased interest rates rather than a surge in loan disbursements, according to the Central Bank of Kenya (CBK).

Data from CBK reveals that interest income from MSME loans rose from Sh79.1 billion in 2022 to Sh91.8 billion in 2024, marking a 16 per cent increase. However, the total value of MSME loans issued remained relatively stagnant, growing marginally from Sh783.3 billion to Sh784.4 billion.

“While a rise in interest rates in 2024 raised the cost of borrowing, it also translated into increased interest income for financial institutions. This directly contributed to the growth in revenue from MSME lending,” CBK stated in its latest sector lending report.

The report highlights that the average interest rate charged by commercial banks on SME loans rose from 15.5 per cent in December 2022 to 16.4 per cent in 2024, pushing up borrowing costs for enterprises already burdened by inflation and operational hurdles.

In contrast, microfinance banks (MFBs) slightly eased their rates, dropping from 27 per cent to 26.3 per cent over the same period.

Medium-sized enterprises—defined as those generating annual revenues between Sh5 million and Sh100 million and employing 50 to 250 workers—bore the brunt of the rate hikes, paying Sh47 billion in interest and loan-related charges in 2024.

Micro-enterprises, with annual turnovers under Sh500,000, paid Sh25.7 billion in interest and charges, outpacing the Sh19 billion paid by small enterprises, despite the latter receiving a greater volume of loans.

By the end of 2024, micro-enterprises owed Sh83.5 billion to commercial banks and Sh5.8 billion to microfinance institutions. Small enterprises held loans worth Sh204.15 billion from banks and Sh8 billion from MFBs.

While MSMEs remain critical drivers of Kenya’s economic growth, the CBK warned that rising loan costs are choking their expansion and reducing their ability to access affordable credit.

Despite efforts to improve financial inclusion, the report underscores persistent challenges in affordability, with access to credit still dominated by stringent collateral requirements, regulatory hurdles, and risk-based pricing mechanisms.

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Banks Pocket Sh13 Billion More from MSMEs Driven by Higher Interest Rates – CBK