Banks open credit floodgate for Kenya’s cottage industry

Briquettes production at the Nakuru Water and Sanitation Services Company Limited (NAWASSCO) /XINHUA

Small traders engaged in businesses that support environmental conservation are likely to access credit from local commercial banks, even as the lenders surpass their annual credit commitment to Micro, Small, and Medium-sized enterprises (MSMEs).

The Nature Positive Financing Assessment Report released on Friday by the banking industry umbrella body, the Kenya Bankers Association (KBA), shows that local lenders overlooked the risky nature of small businesses amid a tough economy to lend them Sh153 billion, two per cent higher than the annual commitment of Sh150 billion signed in October last year.

Speaking during the launch of the report, KBA CEO Raimond Molenje reaffirmed the bank's commitment to financing nature-related enterprises in efforts to create a resilient green economy, perhaps offering a rare insight into what lobby members consider when approving or rejecting credit requests from small businesses.

“As we configure our survival and the survival of our day-to-day business operations, we aim to integrate the existing opportunities in the economy with nature finance to sustain this growth as we aim to attain the global target on full biodiversity recovery by 2050,” he said.

The report reveals that Kenya’s manufacturing, water resource management, environmental services, and agriculture sectors hold combined nature-related investment and financing opportunities valued at Sh19.4 trillion ($100–150 billion) over the next 5 to 10 years.

“The four identified sectors present the most viable opportunities for nature-positive financing,’’ the report reads.

This means that small traders with businesses focused on recycling raw materials, conserving water, promoting environmental conservation, or sustainably producing food are likely to receive credit from local commercial banks.

The findings provide lenders with bankable options to significantly contribute to Kenya’s sustainable economic development, curb nature loss, and strengthen resilience to climate change, aligning with the Green Economy Strategy, National Biodiversity Strategies and Action Plans (NBSAPs), and climate change policies.

It also quantifies Kenya’s investment potential in nature and outlines barriers and solutions for creating bankable projects.

The study highlights innovative instruments such as green bonds, blended finance, and de-risking mechanisms as key enablers.

In August, Absa Kenya committed to dedicating 10 per cent of its loan book in 2025 to green financing. It intends to accelerate this to 35 per cent in the next decade.

Charles Wokabi, the head Vice President, Sustainability, Communications and Corporate Relations at Absa Bank Kenya, told the Star in an exclusive interview that out of Sh47 billion set aside by the lender towards green financing in 2024, Sh9.6 billion went directly to micro small businesses, the highest in the bank’s history.

Wokabi said that Absa has embedded climate risk into its lending framework using geo-referencing tools to assess asset vulnerability.

The Environmental and Social Management System (ESMS) automates screening, ranking, and monitoring of transactions against E&S criteria, supported by the ESRA tool for portfolio-level and deal-specific risk reviews.

“This is part of the bank’s target to operational net-zero by 2040 and financed emissions net-zero by 2050,’’ he said.

He revealed that the bank is focusing on renewable energy, energy efficiency, climate-smart agriculture and green building.

Another Tier 1 lender, KCB Group, has increased its green loan disbursements and set a target to direct 25 per cent of its total loan portfolio to green investments by the end of this financial year.

In 2024, KCB disbursed Sh53.2 billion in green loans, a 140 per cent increase from the previous year, supporting projects in renewable energy, e-mobility, and climate adaptation. 

The bank also achieved a 15.5per cent share of its total loans in 2023 for green initiatives and aims to plant over 1.2 million trees in the next five years to reduce its carbon footprint.  

The insight into what lenders are looking for in small businesses is an opportunity for traders who are struggling to catch the attention of financial institutions, as the majority are shunning them due to increasing non-performing loans.

Non-performing loans (NPLs) have reached a 20-year high in Kenya, with the Monetary Committee report released by the Central Bank of Kenya (CBK) in August indicating that the NPL ratio hit an average of 17.7 per cent, a significant increase from previous periods and a level not seen in a decade. 

This surge is attributed to a difficult economic environment, leading to worsening borrower capacity and increased defaults in sectors like manufacturing, construction, and real estate.

MSMEs are vital to Kenya’s economy, contributing approximately 40 per cent of the national GDP and providing a significant source of employment, with recent figures indicating they create about 15 million jobs. 

Small businesses are a major engine for poverty reduction and income generation, particularly for vulnerable groups like youth and women. 

They absorb a large portion of the new workforce and drive innovation and wealth creation across various sectors, including wholesale and retail trade, manufacturing, and food services. 

On Friday, the local banking lobby launched the Centre for Sustainable Finance and Enterprise Development (CSFED), which will rally members to develop interventions that advance sustainable value for society and the environment, fostering growth for people, nature, climate, and the economy.

Besides, the Centre will serve as a hub for supporting MSME transformation through capacity building and enhanced access to finance.

“We are committed to supporting the industry in advancing the sustainable finance agenda in the country while also promoting financial inclusion for underserved segments, and enhancing MSMEs’ access to affordable finance,” Molenje said.

Speaking during the launch, Mohamed Awer, WWF-Kenya CEO, said that Kenya’s prosperity is deeply tied to nature, with nature-based sectors, including agriculture, tourism, forestry, and fisheries, contributing approximately 42 per cent of the country’s GDP.