Let’s face it: entrepreneurship in Kenya is not for the faint-hearted. The hustle is real. Navigating unpredictable markets and chasing down payments is part of the daily grind for entrepreneurs. Now, just as we are catching our breath, here comes another curveball: proposed banking reforms that could shake up the financial landscape.
The big question is, what do these changes mean for you—the entrepreneur who is out here grinding every day? Let us break it down and see how you can stay ahead of the game.
The Core Capital Proposal: What is Changing?
The government wants to raise the minimum core capital for banks from Ksh. 1 billion to Ksh. 10 billion over the next three years. Minimum core capital refers to the amount of money banks are required to hold in reserve. The reasoning behind this is straightforward: a stronger banking sector is better equipped to handle economic shocks and provide a safer option for depositors. For example, The World Bank noted that during the pandemic, banks with higher capital reserves were better positioned to extend loan moratoriums and support businesses in distress.
However, the move is a double-edged sword. According to the Kenya Bankers Association (KBA), 24 banks will need to raise a collective Ksh. 150 billion to meet these requirements. This could lead to smaller banks—those often catering to Small and Medium Enterprises (SMEs)—struggling to survive or being forced into mergers. Historically, similar reforms in other regions have shown that while the intent is financial stability, smaller institutions frequently bear the brunt, creating a tighter financial market with fewer players.
What Does This Mean for Entrepreneurs?
For small business owners already navigating a challenging economic landscape, these proposed reforms bring a new layer of uncertainty. While the goal of strengthening the banking sector may sound promising on paper, the practical implications for SMEs are less rosy. Accessing affordable credit has always been a hurdle, and these changes risk making it even harder. Here are some of the roadblocks small business owners may experience:
- Reduced Access to Credit
Smaller banks may face closure or mergers, leading to fewer institutions willing to take the perceived risks associated with lending to small businesses. With fewer lenders in the market, businesses could face stiffer challenges in securing credit, as the remaining banks may tighten their lending criteria or focus on larger, less risky clients. - Higher Interest Rates
To meet the new capital requirements, banks might pass on the costs to their customers by increasing interest rates or tightening lending criteria. A report by the World Bank suggests that during similar reforms in Nigeria, loan affordability became a significant issue for SMEs, hampering their growth. - Limited Financial Options
With fewer smaller banks in the game, entrepreneurs might find themselves stuck with one-size-fits-all financial products from larger institutions. This lack of competition could stifle the development of innovative solutions tailored for SMEs.
A familiar Struggle for SMEs
Let us acknowledge the resilience of Kenyan entrepreneurs. Accessing affordable credit has always been a struggle. A 2023 Central Bank of Kenya (CBK) survey found that only 30.6% of SMEs had access to formal credit—a statistic that highlights the already existing gap in financing.
What’s more, many SMEs have turned to informal lenders and fintech platforms to bridge the gap. According to a report in the IOSR Journal, fintech adoption among SMEs grew by over 50% in the last five years, driven by the need for quick and flexible financial solutions. This adaptability shows that while traditional banking reforms may shake things up, Kenyan entrepreneurs are no strangers to finding alternatives and making them work.
This sentiment is echoed by Benaiah Wepundi, a Mozilla Mradi alumnus and founder of Get Payd, a fintech platform offering accessible financial solutions. “The beauty of fintech is its ability to step in where traditional banking systems falter. These reforms are an opportunity for SMEs to embrace technology-driven financial models.”
Opportunities Hidden in the Chaos
Here is the silver lining: times of change always spark innovation. Entrepreneurs can seize new opportunities by exploring alternative financing options and leveling up their financial strategies.
When traditional banks get tough, it is time to think outside the box:
- Seed Funding Projects: If you are looking for financial support to grow your business, seed funding programs can offer a significant boost. At @iBizAfrica, we are fortunate to partner with organizations like Standard Chartered Bank through the Women in Tech Programme (WIT) and USAID through the Women Entrepreneurship Incubator Program (WEIP). Over seven cohorts of Women in Tech, we have awarded over $300,000 to 32 women entrepreneurs. In partnership with USAID, WEIP is set to support 45 women entrepreneurs with a total of $1.275 million, starting next year (2025). These seed funding programs not only provide capital but also offer mentorship and resources that help businesses thrive. Keep an eye out for similar opportunities that could help propel your business forward.
- Crowdfunding: Platforms like M-Changa Africa and Pezesha let you rally support from your network to raise funds. According to a report by FSD Africa, crowdfunding platforms (donation, rewards, debt and equity) raised $37.2 million in 2015 in Kenya, Rwanda, Tanzania and Uganda. By the end of Q1 2016, this figure reached $17.8 million—a 170% year-on-year increase.
- Microfinance Institutions: Organizations such as Faulu Microfinance Bank and Kenya Women Microfinance Bank (KWFT) offer loans tailored to SMEs, often with more flexible repayment terms than traditional banks—for instance, Faulu Bank’s repayment period ranges from 3 to 120 months, depending on the loan size and purpose.
5 - Fintech Solutions: Apps like Tala and Branch are revolutionizing access to microloans—providing fast, small-scale financing without the usual red tape.
But even as we explore these alternatives, the backbone of any financial journey remains preparation. As John Ocheche, @iBizAfrica mentor and Financial Modelling trainer, puts it:
“The numbers don’t lie. Entrepreneurs who understand their cash flow, manage their costs, and present well-organized financial records will always have an edge—even in uncertain times. These reforms are a wake-up call to step up your financial game.”
Lessons from Our Neighbors
Kenya is not the first country to shake up its banking sector. Uganda implemented similar reforms in the early 2010s, raising its minimum capital requirements for banks from Ush 4bn to Ush 10bn. While smaller institutions initially struggled—some even exiting the market—the move eventually stabilized the sector, enabling banks to offer larger loans and weather economic downturns. Today, Uganda’s banking sector is more resilient and better equipped to support growing businesses.
South Africa’s experience also provides a compelling example of the potential impact of financial reforms. The country’s push for stronger financial regulations in the 2000s led to fewer but stronger banks, creating a more robust and resilient banking sector. This shift resulted in the development of specialized financial products such as targeted lending schemes, microfinancing options, and flexible repayment plans for SMEs. Additionally, the regulatory changes enhanced transparency and risk management, boosting investor confidence in the financial sector. These examples show that while the short-term effects, such as initial disruptions and restructuring, can be tough, the long-term benefits—such as a more stable financial system and better access to capital for SMEs—often outweigh the initial challenges.
So What is Your Next Move?
This is not just about banking reforms—it is about how you, as an entrepreneur, position yourself for what is next. While the changes may seem intimidating, this is your moment to pivot, innovate, and adapt. Here is how:
- Stay Informed: Knowledge is power. Keep up with updates on the banking reforms and understand how they might affect your industry.
- Diversify Your Funding Sources: Do not put all your eggs in one basket. Explore alternative financing options and build relationships with multiple financial institutions.
- Strengthen Your Financial Position: Clean up your books, file your taxes, and ensure you are operating as professionally as possible.
- Collaborate and Network: Partnerships and mentorships can provide you with insights and resources you might not have access to alone.
Change is scary, but it is also a chance to grow. Kenyan entrepreneurs have always been resilient, and this is just another challenge to conquer. As you navigate this new terrain, remember: the future of Kenya’s economy depends on people like you—those who dare to dream, hustle, and innovate.