From lending to loan repayment history, bank CEO's call for SME governance reforms

Borrowers with strong repayment records will soon enjoy cheaper loans and better access to credit under Kenya’s new loan pricing formula, bank CEO’s have said.

In the just concluded ‘My Chat with a Bank CEO’ forum, an initiative by the banking industry umbrella body Kenya Bankers Association (KBA), the CEO’s argued that more than half of small enterprises do not live past their second year of operation, a factor that continues to hinder access to affordable credit for business growth.

When compared to big corporations, SMEs face the brunt of limited access to credit, as financiers cushion themselves against financing risks associated with small enterprises.

The October–November 2025 edition features six CEOs discussing how the industry is leveraging the KESONIA framework to empower businesses and households across Kenya.

GTBank Kenya Managing Director Jubril Adeniji said the new framework, however, enables banks to evaluate borrowers on an individual basis, rewarding good repayment behaviour with lower interest rates and, in some cases, eliminating the need for collateral.

Mr Adeniji said the most important C of credit is Character, and that is tied to how one repaid a loan before.

“Your credit history is the most important criterion a financial institution will consider when providing a loan,” he said, adding, “Transparent engagement between borrowers and banks is vital, encouraging customers to communicate early when facing repayment challenges.”

The Kenya Shilling Overnight Interbank Average (KESONIA) model represents a major shift toward risk-based loan pricing to promote fairness and financial inclusion.

It enables banks to evaluate risk more accurately, creating opportunities for MSMEs, youth, and women-led enterprises to access affordable financing.

Under the model, Mr Adeniji said lending rates are pegged to the average overnight interbank rate—the rate at which banks lend to one another —with an additional margin based on each borrower’s credit risk.

“This approach encourages responsible borrowing and repayment discipline, aligning loan pricing more closely with individual risk profiles rather than blanket interest rate caps or uniform pricing,” he said.

Lack of collateral

PostBank Managing Director Raphael Lekolool observed that there is a notable shift towards financing the small enterprise sector, being a major player in driving Kenya’s economy.

“SMEs control almost half of Kenya’s GDP, so it is an area we cannot ignore,” Lekolool said.

Even as the appetite for credit in the sector grows, Lekolool said that the short shelf life of MSMEs makes them less attractive to financiers.

“Most SMEs are not well organised, raising suspicions among banks due to a lack of records,” he said.

Lack of collateral for small businesses has also been identified as hindering access to affordable financing from banks.

“They need to have enough collateral to show that they believe in their businesses when seeking financing,” he advised, noting that banks also look at the viability of a business for financing.

Small businesses have to meet certain metrics like viability for the banks to finance them, he said.

The SMEs also need to have a track record of operation to ease the process of accessing finance.

“Banks are keen on character on credit compliance. If your character does not demonstrate goodwill in regard to repayment of credit, banks will shun from financing,” Lekolool said, adding that proper packaging is essential.

According to the banker, banks want to see the ability to repay.

“A record of your balance sheets, cash flows, and profit and loss records is essential for businesses seeking funding,” he said, adding that a clear record positively impacts interests.

Technology for cross-border trade

Mary Mulili, UBA Bank Kenya Managing Director in her sentiments, said small and medium-sized enterprises have an opportunity to tap into cross-border trade by seizing AfCFTA Opportunities through digital platforms, bank partnerships, and smart financing.

She said the time has come for small traders to overcome knowledge gaps, high payment costs, and financing hurdles to unlock intra-African trade under the African Continental Free Trade Area (AfCFTA).

Despite policy ratification, intra-African trade remains below 15 per cent, hampered by critical barriers that banks and digital tools can now dismantle.

Ms Mulili pinpointed the lack of market intelligence as the primary bottleneck for small and medium-sized enterprises.

“Products rot in Kenyan markets while identical goods are imported from outside Africa,” she noted.

According to her, the solution lies in platforms like AfriExim’s Africa Trade Gateway (ATG), where verified SMEs can instantly view real-time demand, product, quantity, and buyer across the continent.

She said UBA’s 20-country footprint and active trade desks further expose Kenyan exporters to vetted opportunities.

Prohibitive cross-border payment has been identified as an issue holding back cross-border trade.

“Funds move across borders in local currencies and dollars, and back, eroding margins,” Mulili said.

UBA counters this via the Pan-African payment and settlement system (PAPSS) and internal B2B platforms, enabling local-currency billing and receipt with losses below 1 per cent.

“It might look minimal, but again, if you accumulate it for an SME, on a larger scale of it would be a big quarter,” Mulili said.

Customer protection

The CEO’s further argued that commercial banks across the country must leverage the digital lending space to protect customers.

Bhartesh Shah, Chief Executive Officer of SBM Bank Kenya, said mushrooming digital lenders have taken advantage of the vulnerability of those seeking convenience by burdening them with expensive loan facilities.

Shah said that due to the current cost of living, many Micro, Small and Medium Enterprises (MSMEs) that require short-term working capital have opted for mobile loans, which seem efficient but are costly.

He argued that for banks to win and retain these customers, there is a great need for them to boldly develop solutions and loan facilities that offer convenience at affordable rates.

According to Mr Shah, the Kenyan MSME sector is the largest creator of jobs, generating about 90 per cent of employment across different markets.

“This is why banks need to address the issues and needs of customers in that space,” he said.

He noted that across the region, Kenyans are entrepreneurial and, by nature, will start a business or a side hustle, and all they need is an affordable facility that will attract them.

“We know that most of the time, cash flows and projections are key for bank funding. Instead of just analysing income on customers’ accounts to determine their ability to repay loans, we are encouraging banks to also consider the problems the customer is trying to address,” he said.

Shah further challenged MSMEs to work on improving and protecting their credit scores to secure better chances of accessing higher loan facilities.

He said that, unfortunately, the banking industry in many ways still relies on traditional models that require physical security, such as guarantors, land, or buildings.

Shah noted that the majority of borrowers fall within a segment that cannot afford this physical security and thus shy away from bank loans.

“Millions of Kenyans are within this segment, but they don't have tangible security—land or buildings—so the bank that figures out how to address that need without requiring physical security is the one that will have a head start,” he said.

“Credit score is nothing more than an algorithm that, based on your behaviour, tries to predict your probability of default. This is why customers must understand what a credit score is and how they can maintain and improve it,” he said. Credit Report Monitoring

He added that understanding one’s credit score is essential when negotiating a loan facility.

Financial inclusion

While about 85 per cent of Kenya’s population has formal financial access, statistics show that one in every 10 Kenyans is financially excluded.

Mobile banking, internet banking and digital platform integrations have been highlighted as tools for creating financial inclusion for the unbanked.

Ralph Opara, Country Managing Director at Access Bank Kenya, said that unlike traditional banks, mobile banking eliminated the barriers to accessing finance for the unbanked.

“What mobile banking and digital banking did is to ensure that you eliminate distance and cost to the customer where they can transact or access a financial service through their mobile phones,” Mr Opara said, noting that distance was a barrier for people seeking financial services.

He said mobile banking provides convenience, allowing lenders to reach customers on mobile phones and to tailor credit facilities.

In creating impactful products, Mr Opara challenged banks to embed financial literacy in their products.

“We live in a very dynamic environment where consumer changes and requirements change rapidly. So as you even design products, you have to keep monitoring it and tweaking it to ensure that they stay relevant to their end users,” Opara said.

With the increased uptake of mobile banking and digital banking, he said there is a need for consistent revenue, cash streams and collateral. Best smartphone

“Digital banking looks at alternate data-driven credit models to come up with a lending product and by using these alternate credit models like mobile money transactions, utility payments and supplier invoices, basically create a credit worthiness profile for the user,” he said, reiterating that digital and mobile banking is reshaping credit scoring models.

SME governance reforms

National Bank of Kenya Managing Director George Odhiambo, in his sentiments, raised concerns over weak governance, poor data systems and outdated perceptions about lending.

He noted that these remain the biggest obstacles preventing Kenyan SMEs from accessing affordable credit, even as banks modernise their assessment models.

Mr Odhiambo said many SMEs struggle to move from founder-led operations to structured enterprises with proper boards and independent oversight.

“Many of them go to stability after 10 or 20 years. So when you tell them you need to change your governance, have a board, have independent directors, they find it uncomfortable to go to the next level. That is the meaning of awareness,” he said. ‎

‎He noted that bank assessment models have shifted significantly over the past two decades. In the early 2000s, location defined creditworthiness, an approach he says is now obsolete.

“You could be stationed in Nakuru but deliver to someone in Naivasha or Limuru. The market space is no longer a barrier to assessment,” he said, explaining that online commerce has made many SMEs nationwide players regardless of where they operate.

While SMEs often complain that banks still demand collateral, Odhiambo insisted the real challenge is data quality, not assets.

“Lending is about trust. If you miss accommodating mobile payments in your assessment, you miss who the SMEs actually are,” said Odhiambo

He urged entrepreneurs to consolidate their business activity, including mobile receipts, into a primary account to build a reliable financial history.