MSMEs Are Best Placed To Solve Kenya’s Joblessness Problem

Every year for the next decade, nearly 1 million young people will enter Kenya’s labour market, many fresh from universities, colleges, and vocational institutions, and some without any formal education or skills, according to data from the country’s Ministry of Co-Operatives and Micro, Small and Medium Enterprises Development. However, the formal sector players, led by government institutions and the private sector, can only absorb 20% of them.

Corporations, which were once the dependable engines of salaried employment, are under strain from challenging macro-economic conditions, rising operational costs, supply-chain disruptions, and shifting labor market dynamics as more organizations automate what was previously being done by humans. Downsizing has become common, and in some cases, companies have shut down altogether. Kenya, like most developing countries, finds itself at an inflection point where the old employment model can no longer be relied upon to absorb its growing youth population.

The informal sector, which is predominantly driven by the Micro, Small, and Medium-sized enterprises (MSMEs), has been instrumental in covering this unemployment gap.  MSMEs already employ nearly 15 million Kenyans and account for most new jobs being created annually, as per the State Department for Micro, Small and Medium Enterprises. The importance of MSMEs to the economy is acknowledged not only in policy documents but also in the government’s recent initiatives, including the setting up and operationalization of the Nyota Fund, which provides grants to young entrepreneurs to kick-start their ventures. It is an ambitious programme designed to spark enterprise at the grassroots, with individual beneficiaries receiving up to KSh 50,000 in two tranches of KSh 25,000 each, alongside mandatory training and demonstrated progress[3].

The scale of this ambitious project from the Government is welcome. The next natural step is to find ways of supporting these emerging entrepreneurs to endure, evolve and scale, a trajectory that Kenyan MSMEs have historically struggled to attain.

Multiple studies show high early‑stage closure and limited graduation from micro to small; KNBS/CBK trackers confirm persistent gaps in management capabilities, finance, and market linkages.

. The mortality rate for young businesses remains high within the first five years, a vulnerability that stems from gaps that money alone cannot fill[4]. Young and first-time entrepreneurs often lack business-management experience. The gaps exist in pricing, cost control, working-capital cycles, customer segmentation and separating personal from business finances. MSME access to financial advisory networks and digital capabilities are insufficient, even though digital tools are now essential to everything from accounting to marketing. Most critically, they are disconnected from structured value chains. A small business that cannot access reliable markets will remain small, even if access to capital was not a constraint.

This is the support that financial services providers need to urgently provide to the MSMEs. One such institution, which has been working with the Micro sector is Faulu Microfinance Bank. For over three decades, Faulu has worked with the bottom of the pyramid segments of the economy often overlooked by traditional banks, building insights into the rhythms and real needs of MSMEs. The bank’s approach has always emphasized a partnership beyond lending, by prioritizing financial literacy training, business advisory and relationship-based banking. This philosophy is particularly important in the era of youth entrepreneurship, where many beneficiaries of programmes like Nyota are becoming entrepreneurs by necessity.

To succeed where other programs like Nyota have failed in the past, therefore, the government needs to develop a broader collaboration with private-sector actors such as Faulu, training institutions and market aggregators. Without such coordination, the country risks generating thousands of new businesses that are enthusiastic but fragile and may fall into the proverbial MSME curse of death after a few years.

Read Also: Kisumu to Host 2025 Business Ecosystems Summit, Bringing Together Leaders to Empower MSMEs and Unlock Regional Potential

By Stephen Ngungi, the Head of Finance & Strategy of Faulu Microfinance Bank