Kenya´s MSMEs Power 85% of New Jobs, yet Policy Gaps Keep Millions of Business from Growing

What does it take to build a thriving economy when the very businesses sustaining it are set up to fail? In Kenya, micro, small, and medium enterprises (MSMEs) are not just a footnote in the economic story; they are the story. Employing over 14.9 million people, contributing between 30 and 34 % of GDP, and making up more than 90 % of all private enterprises, MSMEs form the backbone of the nation’s economy. Yet, despite their importance, most do not survive beyond their fifth year.

At the 7th Nation Media Group MSMEs Conference and Expo 2026, held at Sarit Centre in Nairobi, Dr William Murithi of Strathmore University Business School presented research that redefines this reality with notable clarity: Kenya is not experiencing a crisis of entrepreneurial failure; it is confronting a crisis of policy.

On 13 March 2026, Arabuko Hall at Sarit Centre convened a dynamic mix of entrepreneurs, financiers, innovators, and policymakers for the 7th Nation Media Group MSMEs Conference and Expo, one of Kenya’s most influential platforms for enterprise development. The agenda was intentional and forward-looking: expanding markets, accelerating digital adoption, and navigating an increasingly complex regulatory landscape.

Setting the tone for the day, Dr William Murithi’s presentation, Kenya’s SME Landscape: Growth Opportunities and the Policy Environment Shaping Entrepreneurship, grounded the discussions in data and evidence, and in a sobering reality, shifting the conversation from assumptions to facts.

 The Numbers Are Telling Us Something

Kenya is home to over 7.4 million MSMEs. Of these, only 1.6 million are formally licensed, while a staggering 5.8 million operate entirely outside the formal system (KNBS, 2016). Together, they power a significant share of the country’s economic output and remain the primary engine of job creation. In 2023 alone, they accounted for 85 % of all new employment.

Yet, despite this scale and significance, most MSMEs fail within their first five years. Why?

Data from the Kenya National Bureau of Statistics (2016) reveals a sector overwhelmingly concentrated at the base. An estimated 92.2 % of all licensed enterprises are micro-businesses. These micro businesses typically employ between 1 and 9 people with an annual turnover below KSh 500,000. Small enterprises make up just 7.1 %, while medium-sized firms, the segment most associated with stable jobs and sustained economic value, account for a mere 0.7 %.

This imbalance is what researchers describe as the “missing middle.” More than just a technical term, it is a diagnosis. A diagnosis that directly highlights the structural constraints preventing businesses from transitioning from survival to growth.

What are the barriers?

Interestingly, the barriers are not new; we have been living with them. According to the Kenya National Bureau of Statistics, approximately 2.2 million businesses closed in Kenya between 2011 and 2016. These closures are not simply the result of a tough market. They reflect a pattern. The pattern points to a system that is yet to be meaningfully redesigned to reflect the realities of the entrepreneurs it is meant to serve.

Access to finance remains the most persistent constraint. A 2021 survey report by the Kenya Bankers Association (KBA) notes that approximately 70% of MSMEs report difficulty obtaining credit, with 54% citing collateral requirements and documentation burdens as the primary barriers. Even among licensed businesses that have already taken steps toward formalisation, more than half (52.2%) still struggle to secure loans. These financial systems are built around formal credit histories and fixed assets. In such a scenario, they inevitably exclude the very enterprises they are expected to support.

Regulatory complexity compounds the challenge. Multiple licensing requirements create layers of cost, in both time and money, that disproportionately affect smaller businesses. Taxation, rather than enabling growth, is frequently experienced as punitive, reinforcing the incentive to remain small and informal rather than scale.

Market access presents yet another constraint. The KBA survey indicates that about 18% of licensed MSMEs and 15% of unlicensed MSMEs identify limited market opportunities as a key challenge. With most enterprises operating with fewer than five suppliers, their ability to negotiate better terms, diversify risk, or compete effectively remains severely restricted.

The COVID-19 pandemic did not create these vulnerabilities; it exposed and worsened them. The proportion of MSMEs earning less than KSh 100,000 per month increased significantly during this period, while nearly 80 of firms, especially female-owned firms, are now considered risk-averse. However, this caution should not be misunderstood. In an environment where the margin for error is very small, risk aversion is not a weakness; it is a sensible response to systemic limitations.

The Opportunity Is There—If We Create the Conditions

Focusing only on constraints would give an incomplete picture of the MSMEs environment in Kenya. The sector is full of opportunities: the digital economy is changing how businesses operate and expand; agribusiness value chains present export potential and chances for adding value; the green economy is tapping into new markets; and the African Continental Free Trade Area is making regional growth more achievable. The positive note is that Kenya performs well in access to credit. Infrastructure, at least partially, is already in place. The pressing question is: who does it serve—and who does it leave behind?

What the Evidence Is Asking Us to Do

In his concluding remarks, Dr.William noted that the direction is clear. Simplify licensing. Reduce the cost and complexity of compliance. Rethink credit by moving beyond collateral-heavy models. Invest in core infrastructure as a foundation for enterprise growth.

More importantly, financial inclusion must shift from access to design. Standardised credit products do not work for businesses with seasonal incomes, informal records, or limited assets. Tailored solutions are not optional; they are essential.

Policy momentum is evident. The draft MSMEs Policy 2025, the Startup Act, the Hustler Fund, the Credit Guarantee Scheme, and the Bottom-Up Economic Transformation Agenda all signal intent. The true test, as always, is implementation: will these frameworks reach businesses on the ground, or remain promising ideas on paper?

Conclusion

The 7th Nation Media Group MSMEs Conference was full of energy and insight. What stood out most was not the size of the challenge, but the clarity of the solutions. Kenya does not lack knowledge, policy, or intent. What it needs is execution. Because 14.9 million livelihoods are not waiting for another report; they are waiting for results.

Written by Victoria Gichuki, Strathmore University Business School