What happened

The Central Bank of Kenya (CBK) released a survey, reported by People Daily, that cautions cheaper credit by itself may not be sufficient to save Kenyan businesses facing cash‑flow pressures. The survey gathered responses from a cross‑section of SMEs, large firms and financial institutions, and the key finding was that while reduced borrowing costs are welcome, many firms still struggle with repayment capacity, limited access to working‑capital loans and structural cost pressures. In short, lower interest rates do not automatically translate into healthier balance sheets for many Kenyan enterprises.

Context and background

The CBK’s inquiry was prompted by a series of monetary policy moves over the past two years that saw the policy rate cut from double‑digit levels to the low‑single digits in an effort to stimulate growth. The central bank has repeatedly signalled that credit expansion is a pillar of its growth strategy, especially for the informal sector and micro‑enterprises that contribute roughly 30 % of Kenya’s GDP. However, the survey revealed that many borrowers remain wary of taking on new debt, citing past experiences of high default rates and limited collateral options.

Respondents to the CBK survey included owners of manufacturing firms in Nairobi’s industrial belt, agro‑processors in the Rift Valley, and service‑oriented SMEs in coastal towns such as Mombasa. Financial institutions that participated reported a mixed picture: while loan approval volumes have risen modestly, the average loan size has not kept pace with inflation‑adjusted operating costs. Moreover, the survey highlighted that many firms are still grappling with high input costs, foreign‑exchange volatility and supply‑chain disruptions that erode the benefit of cheaper financing.

Historically, Kenya’s credit market has been characterised by high interest spreads, with commercial banks charging anywhere between 20 % and 30 % on unsecured loans. The CBK’s recent rate cuts aimed to bring those spreads down, but the survey suggests that the transmission of lower policy rates to end‑user lending is uneven. Some lenders have passed on the reductions, while others maintain higher margins to cover perceived credit risk. This divergence is a key factor behind the survey’s conclusion that cheaper credit alone will not rescue businesses without complementary measures such as better credit assessment, flexible repayment terms and stronger cash‑flow planning.

Compared with what is normal

When the CBK last conducted a similar credit‑access survey in 2020, the average cost of borrowing for SMEs was around 25 % per annum. By contrast, the current policy environment has pushed nominal rates closer to 12‑14 % for qualified borrowers. Yet the survey shows that many SMEs continue to face effective rates above 18 % after fees and risk premiums are added. This gap illustrates that the “normal” expectation of a direct pass‑through from policy cuts to lower SME rates is not being met.

• Policy rate fell from 13.5 % in early 2022 to 7.0 % in 2024 – a 6.5 % absolute reduction.
• Average SME loan interest remained above 18 % in the latest survey, versus 25 % in 2020.
• Loan approval rates improved from 58 % to 64 %, but loan sizes grew only 5 % year‑on‑year.

Why it matters

For Kenyan SME owners, the survey’s findings signal that simply waiting for cheaper loans may not solve cash‑flow gaps. Firms that rely heavily on imported inputs or that operate on thin margins may see limited relief if the cost of goods remains high. Additionally, the persistence of high effective interest rates can increase the risk of default, leading banks to tighten lending criteria further – a cycle that could choke growth for the very businesses the policy intends to help.

From a finance‑team perspective, the results underscore the importance of rigorous cash‑flow forecasting and debt‑service planning. Companies that can demonstrate strong repayment capacity are more likely to benefit from the lower rates that are available. Moreover, the survey highlights a broader macroeconomic reality: credit is only one piece of the puzzle. Inflation, exchange‑rate pressures and supply‑chain reliability remain critical variables that affect profitability and the ability to service debt.

Practical steps

• Review your cash‑flow projections for the next 12‑18 months and identify any shortfalls that could jeopardise loan repayments.
• Engage with your bank to negotiate flexible repayment schedules or interest‑only periods, especially if you anticipate seasonal revenue fluctuations.
• Explore alternative financing options such as trade credit, supplier financing or government‑backed loan guarantees that may carry lower effective rates.
• Strengthen your credit documentation – maintain up‑to‑date financial statements, tax filings and collateral registers to improve your borrowing profile.

Beavoren Ventures’ Financial Management & Analysis service can help SMEs translate the survey’s insights into actionable financial plans, ensuring that lower borrowing costs are fully leveraged while mitigating repayment risk.

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Disclaimer: This article is informational and does not constitute formal tax, audit or legal advice. For guidance specific to your circumstances, please contact Beavoren Ventures.