Banks Write Off SME Loans Worth Sh8.8 Billion as Kenya’s Small Businesses Collapse Under High Interest Rates
By the time 2024 closed, over 95,000 loan accounts held by Kenya’s small businesses (SMEs) had disappeared—wiped clean from the books of banks and micro-financiers.
It wasn’t a clerical error. It was a write-off.
According to new data from the Central Bank of Kenya (CBK), commercial banks and microfinance institutions collectively wrote off loans amounting to Sh8.8 billion, owed by micro, small, and medium enterprises (MSMEs). The number of affected accounts jumped nearly fivefold compared to the year before, painting a troubling picture of a sector overwhelmed by cost, credit barriers, and collapsing demand.
The numbers tell a story of distress.
Out of the total written-off amount, commercial banks accounted for Sh7.7 billion, while microfinance banks covered Sh1.1 billion. Interestingly, while the number of loan accounts written off surged, the total value of these defaults actually dipped slightly from Sh9.6 billion in 2022—suggesting a broad base of smaller borrowers drowning at the bottom end of the market.
Micro businesses—often unregistered and operating in informal trade—were the hardest hit. They made up a staggering 94.5 percent of the defaulted loans. These firms lost access to a combined Sh5.62 billion, effectively wiping out thousands of hustles and side gigs that once fed families and paid rent.
The reasons are no mystery.
Interest rates hovered above 15 percent last year, peaking at an average 17.22 percent in November. For a small business barely breaking even, these terms became unbearable. Lenders, wary of the risks, insisted on full collateral coverage—conditions many MSMEs simply couldn’t meet. As a result, the flow of credit shrank, and with it, the pulse of enterprise in towns and rural centers alike.
By December, Sh149.8 billion in MSME loans had turned into non-performing loans—over 21 percent of all bad loans in Kenya’s banking sector. The fallout has been hard not just on borrowers, but also on lenders. CBK reports that the cost of recovering defaulted MSME loans rose dramatically. Banks spent 16 percent more in recovery operations, while MFBs saw costs rise to 15 percent, driven by legal fees, asset tracing, and third-party collection efforts.
But regulators are not standing still.
In an effort to revive credit access, CBK cut its benchmark lending rate to 9.75 percent, marking the sixth straight reduction. Banks are under direct pressure to pass down these lower rates—or face regulatory fines. Physical inspections of bank compliance began in February, a rare move underscoring the seriousness of the situation.
Still, for the businesses already written off, these reforms may come too late.
This is no longer just a credit crisis. It’s a collapse of confidence in the financial viability of Kenya’s smallest businesses—enterprises once celebrated as the backbone of the economy.
The 2024 numbers show what happens when that backbone bends too far. It snaps.
Follow us on WhatsApp, Telegram, Twitter, and Facebook, or subscribe to our weekly newsletter to ensure you don’t miss out on any future updates. Send tips to editorial@techtrendsmedia.co.ke
