Kenyan banks earned nearly Sh13 billion more from micro, small, and medium enterprises (MSMEs) in 2024 compared to 2022, a spike attributed to increased interest rates that pushed up the cost of borrowing for small businesses, new data from the Central Bank of Kenya (CBK) shows.

The report reveals that interest income from MSME loans grew from Sh79.1 billion in 2022 to Sh91.8 billion in 2024, representing a 16 percent jump.

However, this growth in revenue was not matched by a rise in lending volumes, indicating that the additional earnings were largely driven by more expensive loans rather than greater credit access.

During the same period, credit to MSMEs rose marginally, from Sh783.3 billion to Sh784.4 billion. The modest increase in loan disbursement contrasts sharply with the rise in revenues, highlighting the effect of higher interest rates.

“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 a report on banking sector lending to MSMEs.

The average interest rate charged by commercial banks on SME loans climbed from 15.5 percent in December 2022 to 16.4 percent in 2024.

In contrast, microfinance banks (MFBs) recorded a slight decrease in their lending rates, from 27 percent to 26.3 percent over the same period.

Medium-sized enterprises, classified as those with an annual turnover of between Sh5 million and Sh100 million and employing 50 to 250 people, faced the highest borrowing costs. In 2024, they paid Sh47 billion in interest and related charges.

Micro enterprises, which earn below Sh500,000 annually, paid Sh25.7 billion in interest and fees—outpacing small enterprises, which paid Sh19 billion, even though the latter received more in total loans.

Commercial banks held Sh83.5 billion in outstanding loans from micro enterprises in 2024, while microfinance banks were owed Sh5.8 billion. Small enterprises had Sh204.15 billion in loans from commercial banks and another Sh8 billion from MFBs.