Banks pocket Sh13 billion more from MSMEs driven by higher interest rates – CBK
The data shows that interest income from MSME loans increased from Sh79.1 billion in 2022 to Sh91.8 billion in 2024, marking a 16 per cent jump.
Banks collected nearly Sh13 billion more from micro, small, and medium enterprises (MSMEs) in 2024 compared to 2022, with the increase coming from higher interest rates rather than a rise in actual loans issued, according to a report by the Central Bank of Kenya (CBK).
The data shows that interest income from MSME loans increased from Sh79.1 billion in 2022 to Sh91.8 billion in 2024, marking a 16 per cent jump.
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However, the total value of loans issued to these enterprises grew slightly, from Sh783.3 billion to Sh784.4 billion over the same period, pointing to increased loan costs as the source of the additional revenue.
“While a rise in interest rates in 2024 raised the cost of borrowing, it also translated into increased interest income for financial institutions. This directly contributed to the growth in revenue from MSME lending,” said CBK in its report on sector lending.
The rise in commercial bank interest rates on SME loans, from an average of 15.5 per cent in December 2022 to 16.4 per cent in 2024, made borrowing more expensive for businesses already facing high operational challenges.
Meanwhile, microfinance banks (MFBs) slightly reduced their rates from 27 per cent to 26.3 per cent.
Medium-sized enterprises, defined as those with annual revenues between Sh5 million and Sh100 million and employing 50 to 250 workers, were the most affected by these increased charges.
They paid a total of Sh47 billion in interest and loan-related fees last year.
Micro enterprises, with annual turnovers under Sh500,000, paid Sh25.7 billion in interest and charges, more than the Sh19 billion paid by small enterprises, even though the latter received more in total loans.
As of 2024, micro-enterprises owed Sh83.5 billion to commercial banks and Sh5.8 billion to microfinance banks.
Small enterprises had loans amounting to Sh204.15 billion from banks and Sh8 billion from MFBs.
Despite the huge contribution of MSMEs to the economy, the rising cost of borrowing continues to strain their operations, with limited growth in access to affordable credit.
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