State ropes in medium-sized firms in new policy changes

**Traders at Soko Mjinga Market in Nyeri**. [Kibata Kihu, Standard]

The government has included medium-sized enterprises in the new policy in works for small businesses, whose development is meant to seal data gaps that have impeded application of some of the incentives offered by the State.

In the current policy that came into effect in 2020, medium enterprises were excluded. It covered micro and small enterprises (MSEs), which the ministry in charge noted as the missing link in the growth of small businesses.

The draft document, currently undergoing public participation also seeks to seal the data gaps that exist in the sector, which has been linked to the reluctance of small businesses taking up some of the incentives offered by the government such as the credit guarantee scheme (CGS).

CGS is funding offered by banks in partnership with the government to businesses at favourable rates. The scheme derisks small businesses, hence allowing banks to extend loans to them.

According to the draft document, such incentives are necessary for the creation, survival and growth of MSMEs since they cushion small businesses at their nascent stage - from the stiff competition and stringent requirements in the business environment.

Incentives are both fiscal and non-fiscal that MSMEs may need while running an enterprise. CGS is one of the fiscal incentives listed in the document. These extend to tax holidays, special economic zones (SEZs), reduced corporate tax rates and exemptions on imports of raw materials. Non-fiscal incentives include training, business development support and participation in trade missions. However, the uptake of these incentives by MSMEs have not been impressive according to the Ministry of Co-operatives and MSMEs Development.

“The sub-optimal MSME uptake of current incentives suggests that the Kenyan government may not be effectively using data to design and implement incentives for Micro, Small, and Medium Enterprises, leading to resource misallocation, inefficient programmes and missed opportunities among other implications,” the document reads. The ministry says access to complete, timely, accurate, reliable and quality data and information is key to the development of the sector.

It points out that the sector experiences gaps in data management capacity as there is no clear framework for data collection, collation and analysis across the MSME ecosystem.

“There are also infrastructural and institutional barriers that affect data collection, analysis, sharing and use both at the National and County levels as well as to other non-State actors. An integrated data management framework will be an important pillar in enhancing collaboration and coordination among the MSME sector players,” the document says.

Support mechanisms

It describes MSME data as not only valuable to the actors in the sector, but also across related segments of the economy at county, national and global level.

“The lack of an integrated database is a significant challenge that affects policy formulation, planning, credit allocation, and support mechanisms for the sector,” says the ministry in the document. “Without a centralised and reliable source of MSME data, it is difficult to understand the sector’s real size, its growth patterns, and the specific challenges it faces.”

The MSME sector still depends on 2016 data to formulate policies and interventions. However, while the data by Kenya National Bureau of Statistics (KNBS) shows the country has about 7.4 million MSMEs, it is argued that the number is more considering a majority of these entities operate informally.

The draft policy quotes these figures where 1.6 million MSMEs are licensed by county governments with 5.8 million operating without permits. These businesses are responsible for offering jobs to 14.9 million employees.

The document quotes the KNBS 2024 Economic Survey Report which shows employment in the informal sector, dominated by MSMEs created 720,900 jobs in 2023.

In the 2025 KNBS Economic Survey Report, the sector created 703,700 jobs contributing 90 per cent of jobs created in 2024. The draft policy notes that MSMEs are key in absorbing the low-skill and economically excluded segment of the labour market, where a majority of youth, persons with disabilities and those with low levels of education fall.

It adds that MSMEs in the country are more skewed towards the micro with KNBS data affirming this as 92.2 per cent of licensed enterprises employing less than 10 people.

“MSME size distribution is highly skewed towards micro, with the KNBS findings indicating 92.2 per cent of licensed establishments being micro, employing between one to nine employees, while at the same time all unlicensed businesses are micro,” the document reads.