NAIROBI, Kenya, Jul 30 – Kenya must deepen its capital markets and develop innovative financing instruments to unlock long-term funding for small and medium-sized enterprises (SMEs), industry experts have said, warning that overreliance on bank lending is leaving one of the country’s biggest economic drivers starved of capital.
Speaking during the Capital FM Investment, Trade and Opportunity Town Hall at Strathmore University, the panelists said SMEs—which account for nearly 80 per cent of Kenya’s GDP—continue to face significant barriers to accessing affordable, long-term financing despite their critical role in driving economic growth and employment.
While Kenya’s financial sector has expanded considerably, they argued that much of the country’s growing pool of domestic savings remains concentrated in government securities rather than productive private-sector investments.
Kenya’s capital markets have grown significantly over the past decade, with pension assets now exceeding Sh2.4 trillion, collective investment schemes managing more than Sh450 billion, and the Nairobi Securities Exchange valued at more than Sh2 trillion.
However, institutional investors continue to channel a substantial share of these funds into government debt, limiting the availability of patient capital for businesses, particularly SMEs.
Sameer Raja, Assistant General Manager and Investment Advisor at I&M Capital Limited, said smaller businesses remain the most underserved segment of Kenya’s financial system because they often lack the collateral and predictable cash flows required by traditional lenders.
“The biggest financing gap today falls within the SME sector because many businesses lack sufficient collateral or cash flows to qualify for traditional lending.”
“We need to expand financing beyond traditional bank lending and deepen the capital markets so SMEs have greater access to affordable funding.”
Raja noted that although digital lenders have improved access to credit, their short-term and often high-cost loans are ill-suited to businesses seeking long-term growth capital.
Meanwhile, Charles Miano, Senior Portfolio Manager at Nabo Capital, said Kenya already possesses one of East Africa’s largest pools of long-term domestic savings, but too much of that capital continues to finance government borrowing instead of productive private-sector investment.
He urged policymakers and regulators to accelerate the development of innovative capital market instruments, including securitisation and other asset-backed securities, to expand financing options for businesses while giving investors access to diversified long-term assets.
“A significant share of available investment capital is still flowing into government securities instead of financing productive sectors of the economy.”
“If we create more innovative capital market products such as securitisation, we can unlock long-term financing for SMEs and support broader economic growth.”
Miano said securitisation could enable future income streams from infrastructure projects and other assets to be converted into investable securities, broadening the range of financing instruments available beyond conventional bank loans.
The panel also underscored the importance of a stable regulatory environment in supporting capital market development.
Onesmus Kiema, Associate Director for Tax and Regulatory Services at KPMG East Africa, said investors require certainty that tax and regulatory policies will remain predictable throughout the life of their investments.
“Governments must strike a delicate balance between raising revenue and maintaining an investment environment that encourages businesses to grow.”
“Investors need certainty that the tax framework under which they invest today will remain predictable over the life of their investments.”
Kiema said greater tax certainty and improved transparency in the use of public resources would strengthen investor confidence and encourage more long-term capital deployment.
The experts agreed that deepening Kenya’s capital markets and directing institutional savings towards productive private-sector investments could help narrow the country’s persistent SME financing gap, accelerate enterprise growth and create jobs while reducing overdependence on traditional bank lending.
