Key Strategies for Banks Expanding Reach to MSME Segment in Kenya

Banks continue to boost financial inclusion in Kenya by providing retail finance to the micro, small and medium-sized enterprise (MSME) segment. The banks’ total SME lending portfolio in December 2013 was estimated to be 23.4% of their total lending portfolio, but considering that the largest percentage of businesses in Kenya are in the MSME sector, financing to MSMEs should continue to grow.

This briefing note explores strategies to be employed by banks in Kenya to increase financing to the MSME segment in the face of competition from formal and informal financial services providers. The note makes the following key points:

1. To increase volume and value of MSME lending, financial institutions need a clear MSME strategy.
2. Scalability of MSME financing requires incorporation of digital financial services to delivery channels.
3. Financial institutions branding should resonate with MSMEs. Product design should capture the financial behaviour of MSMEs.