NAIROBI, Kenya, Nov 13 – Commercial banks increased lending to micro, small and medium-sized enterprises (MSMEs) by 30 percent in the nine months to September 2026, signaling a recovery in credit demand as borrowing costs eased.
Data from the Kenya Bankers Association (KBA) shows that lenders disbursed Sh424.67 billion in new credit to small businesses between January and September, up from Sh326.5 billion over a similar period last year.
The latest lending volumes put the banking sector within reach of its Sh500 billion full-year MSME financing target.
Equity Bank accounted for the largest share of new MSME lending, advancing Sh127.95 billion during the period, equivalent to approximately 30.13 percent of the industry total.
Co-operative Bank followed with Sh60.26 billion, while KCB Bank ranked third with Sh41.1 billion.
Family Bank disbursed Sh31.84 billion, followed by NCBA at Sh28.69 billion and Stanbic Bank at Sh25.93 billion.
Other lenders among the top ten were Absa Bank Kenya at Sh21.2 billion, I&M Bank at Sh20.39 billion, Kingdom Bank at Sh15.9 billion and Diamond Trust Bank at Sh14.34 billion.
The expansion in lending comes amid a gradual reduction in the cost of credit, with average commercial bank lending rates falling to 14.4 percent in September from 17.2 percent in November 2024.
The lower rates have coincided with an improvement in private sector credit growth, which increased to 10.6 percent in September from 10.3 percent in August, pointing to stronger borrowing activity among businesses.
However, the increase in credit availability comes against the backdrop of persistent financing challenges facing smaller enterprises, including limited collateral, irregular cash flows and the cost of meeting banks’ lending requirements.
For many MSMEs, access to financing remains a constraint to expanding operations, purchasing inventory and investing in equipment, particularly for businesses operating outside established supply chains.
The banking sector has also recorded an improvement in loan repayment performance, with the gross non-performing loan (NPL) ratio declining to 13.9 percent in September from 14.8 percent in June and 17.6 percent in August 2025.
“This surge in enterprise financing has been reinforced by an improving macroeconomic climate characterized by softening borrowing costs and revitalized private enterprise demand.”
“Average commercial bank lending rates moderated to 14.4 percent in September 2026, marking a meaningful easing from the 17.2 percent recorded in November 2024. Cheaper credit has fostered renewed business confidence, lifting overall private sector credit expansion to 10.6 percent in September from 10.3 percent in August.”
The decline suggests an improvement in asset quality, although the NPL ratio remains elevated, indicating that a significant proportion of bank lending continues to face repayment challenges.
The improvement in loan performance could provide lenders with greater room to extend credit, but sustained growth will depend on businesses maintaining stable revenues and managing debt obligations.
