NAIROBI, Kenya, Jul 27 – For decades, raising capital has remained one of the biggest hurdles facing Kenya’s small and medium-sized enterprises (SMEs). Most entrepreneurs rely on personal savings, family members, friends, chamas or bank loans to finance their businesses.
While these sources help businesses get started, they often fall short when firms need patient, long-term capital to expand operations, invest in new technology or enter regional markets.
The financing challenge is substantial.
According to the International Finance Corporation (IFC), Kenya’s micro, small and medium-sized enterprises (MSMEs) face a financing gap of approximately Sh2.2 trillion (USD19.3 billion), despite accounting for about 80 per cent of businesses in the country.
The IFC notes that many SMEs fall into the “missing middle”—too large for microfinance but too small or too risky to secure conventional bank financing.
The sector’s importance to Kenya’s economy makes the financing gap even more significant.
According to the Kenya National Bureau of Statistics (KNBS), MSMEs employ about 16 million Kenyans, generated more than 700,000 new jobs in 2022—representing 86.1 per cent of all new jobs created that year—and contribute about 33.8 per cent of the country’s Gross Value Added.
Yet despite their importance, many SMEs continue relying on informal financing, highlighting the limited availability of alternative long-term funding.
It is this financing gap that the Nairobi Securities Exchange (NSE) hopes to narrow through its SME Market Segment, formerly known as the Growth Enterprise Market Segment (GEMS).
The platform was established to enable promising SMEs to access long-term capital from public investors under less demanding listing requirements than those applicable to larger companies.
Businesses require a minimum paid-up share capital of Sh10 million, a shorter operating history and fewer listing obligations than firms joining the Main Investment Market Segment.
Its objective is straightforward: provide SMEs with an alternative to expensive debt while improving corporate governance, transparency and market visibility.
Why equity matters
Unlike bank loans, equity financing does not require businesses to make regular loan repayments regardless of profitability.
Instead, companies raise capital from investors who become shareholders and share in both the risks and rewards of future growth.
That allows expanding firms to reinvest more of their earnings into hiring, technology, product development and regional expansion rather than servicing debt.
The trade-off is that founders dilute ownership and become subject to stricter governance, disclosure and reporting obligations.
For many SMEs, deciding whether to borrow or raise equity therefore becomes a balance between preserving ownership and accessing patient capital capable of supporting long-term growth.
Although only a handful of companies have listed so far, those already on the market argue that the exchange has strengthened their growth prospects.
Among them is Homeboyz Entertainment Plc, which joined the SME Market Segment in 2020.
“GEMS enables small and medium-sized firms like Homeboyz to raise substantial initial and ongoing capital, while benefiting from increased brand visibility and liquidity within a regulatory environment designed specifically to meet our needs,” the firm said at the time of its listing.
Since listing, Homeboyz Entertainment has expanded from a DJ agency into an integrated marketing communications and events company employing about 300 people across several business lines.
Another example is Shri Krishana Overseas PLC (SKL), the packaging manufacturer that joined the SME Market Segment by introduction in July 2025.
Managing Director Dr Sonvir Singh described the listing as part of the company’s long-term expansion strategy.
“Listing on the NSE’s SME Market Segment is a strategic decision that will provide access to the capital markets, enabling us to accelerate our future expansion plans while presenting opportunities for investors seeking to participate in Kenya’s packaging sector.”
Although the company did not immediately raise fresh capital through its listing, joining the exchange positioned it to tap equity markets in future while raising its corporate profile.
NSE Chief Executive Frank Mwiti argues that listing offers benefits extending well beyond fundraising.
“The listing will provide the company with unparalleled access to a broad range of both domestic and international investors, creating opportunities for efficient capital raising to support its expansion strategy, innovation pipeline and long-term value creation.”
Beyond access to capital, listed SMEs often benefit from stronger governance structures, improved disclosure standards and greater visibility among customers, lenders and institutional investors.
Why aren’t more SMEs listing?
Despite these advantages, uptake has remained modest. Since the GEMS market was launched in 2013, only about 10 companies have listed on the NSE, collectively raising more than Sh2 billion.
Industry analysts say the slow uptake goes beyond listing requirements. Many SMEs remain family-owned businesses and are reluctant to dilute ownership or publicly disclose their financial information.
Others point to high compliance and listing costs, stricter corporate governance requirements, and low trading liquidity as factors that make public markets less attractive. Limited awareness of equity financing has also seen many entrepreneurs continue to rely on bank loans or informal sources of funding.
“Many SMEs are still family-owned businesses and are reluctant to open up ownership or embrace the governance structures required of listed companies,” former NSE Chief Executive Geoffrey Odundo said.
Can Kenya’s capital markets become a genuine alternative?
The financing challenge itself continues to grow.
While the IFC estimated Kenya’s MSME financing gap at approximately Sh2.2 trillion, more recent policy reviews place the shortfall at more than Sh3.3 trillion, reflecting rising demand for working capital and business expansion financing.
Closing that gap will require more than simply maintaining an SME board.
Analysts argue that expanding investor participation, strengthening financial literacy, reducing listing costs, improving research coverage and supporting SMEs through the listing process will all be essential if public markets are to become a meaningful source of growth capital.
“Very little research coverage is available for listed SMEs… this affects the visibility of these firms… and ultimately their attractiveness to investors,” according to the World Bank.
Learning from other markets
Kenya is not alone in trying to use capital markets to support smaller businesses.
Countries including the United Kingdom, South Africa and Nigeria have established dedicated SME exchanges to provide growing companies with access to equity capital while encouraging improvements in governance and transparency.
Experience across those markets suggests that success depends not only on creating dedicated listing platforms but also on ensuring sufficient investor participation, liquidity and advisory support for smaller companies.
Those lessons are increasingly relevant as Kenya seeks to deepen its capital markets.
As Kenya looks to reduce business dependence on bank lending, the SME Market Segment offers a promising alternative for companies with strong growth potential but limited access to traditional finance.
Whether it becomes a genuine growth engine for SMEs, however, will depend on more than the number of companies that choose to list.
Its long-term success will be measured by how much capital businesses raise, whether investors actively support emerging enterprises and whether listed companies translate access to equity financing into sustained growth, innovation and job creation.
The challenge for Kenya’s capital markets is no longer simply providing SMEs with a route to the stock exchange.
It is building an ecosystem where entrepreneurs, investors and regulators have the confidence to use public markets as a practical engine for financing the country’s next generation of high-growth businesses.
