Impact investing is often framed as an equity story: start-ups, venture capital and high-growth companies. These investments have created significant value and will remain an important part of Kenya’s investment landscape. But this framing leaves out much of the Kenyan economy.
For the businesses that employ most Kenyans, the more pressing question may not be who will take an equity stake in them, but who will provide the capital they need to grow. Across the country, millions of businesses are not looking for someone to buy a stake in them. They need loans they can afford, structured around how their cash actually moves.
This is worth taking seriously because the scale involved is significant. MSMEs account for roughly 98 percent of businesses in Kenya and contribute about 30 percent of GDP. They sustain an estimated 14.9 million livelihoods, around 93 percent of the private-sector workforce. In 2024 alone, the informal sector generated some 703,700 new jobs. These are not fringe statistics about a niche segment of the economy; they describe the economy itself.
Yet only about 23 percent of these businesses have access to formal financing. Where credit is available, it is often expensive, with borrowing costs for underserved businesses reaching as high as 50 percent a year. Kenya’s estimated credit gap sits at roughly Sh2.4 trillion. Women, who own close to half of the country’s MSMEs, are disproportionately concentrated in the smaller, more informal and credit-constrained end of that market.
Put plainly: the constraint holding back a large share of Kenya’s productive economy is not the absence of an equity investor. It is the shortage of affordable credit.
Impact investing, tends to start with the question: does this business need investment? A more useful starting point is: what kind of capital does this business actually need?
A profitable, growing distributor does not need to give up equity to expand. It may need working capital to hold more inventory, financing against invoices already issued, a facility to bridge supply-chain cycles, or term debt to buy equipment. The appropriate form of capital depends on the business and what it is to finance.
Financing that lets a business buy inventory, fulfil a larger order, retain staff or invest in equipment has direct economic consequences. Not every loan creates impact. A badly structured one can create financial distress. But financing deployed into productive businesses and sectors can generate measurable economic outcomes while still earning investors a proper return.
If millions of Kenyans earn their living through small businesses, and those businesses need debt, not equity to grow, then lending should not be treated as the less interesting half of impact investing. Perhaps the next chapter of this conversation should be less preoccupied with finding the next high-growth start-up and more interested in financing the businesses that are already employing the country.
One of the more interesting features of well-designed debt strategies is that impact does not have to be delivered one company at a time. Capital channelled through credible microfinance institutions can, through their existing lending networks, reach far more businesses than any single fund could underwrite directly, across agriculture, trade, transport, construction, services, health and education.
One pool of institutional capital, deployed through the right intermediaries, can be transformed into many smaller loans reaching businesses that a single balance sheet could never reach on its own.
Debt still requires discipline
None of this is an argument for lending more indiscriminately. The MFI sector itself faces real constraints: high cost of credit, thin collateral among borrowers, elevated credit risk, fragmented funding structures, regulatory pressure, technology gaps and uneven governance. These are conditions under which debt can do harm rather than good.
The case for debt as impact capital is therefore a case for discipline. Financing needs to be properly underwritten, aligned to a borrower’s ability to repay, and supported by governance and risk management that protect both borrower and lender. “More debt” is not the goal. Better lending is.