Kenyan businesses are finding it harder to access affordable loans. A new report by Moody’s shows that credit conditions have worsened in Kenya, Nigeria, and South Africa, with local companies among the most affected.
Why Loans Are Expensive
The main reason is government borrowing. When the state borrows heavily from local lenders, it competes with businesses for the same money. This raises interest rates and makes credit more costly.
Moody’s Senior Vice President Lucie Villa noted that debt costs for banks, companies, and governments have increased in all three markets. Higher policy rates over the past five years have added to the challenge.
Limited Options for Businesses
Kenya’s capital markets are shallow, leaving few options besides bank loans. With limited alternatives, many businesses rely on expensive borrowing. Some entrepreneurs are even locked out of financing, making it difficult to invest in growth.
Although borrowing from development partners has reduced the cost of some foreign debt, it has not been enough to offset high local interest rates. Even with slight improvements since 2022, Kenya’s debt still carries a spread of about 500 basis points above U.S. Treasury bonds. This reflects the higher risk of lending to the country.
What Needs to Change
According to Moody’s, fixing the issue will take time. The first step is stronger economic policies and better financial regulation. Expanding access to credit is also essential to bring borrowing costs down sustainably.
Until then, Kenyan firms will continue to struggle, with expensive loans slowing down business expansion and innovation.
Treasury’s Plan to Raise Funds
Meanwhile, Treasury Cabinet Secretary John Mbadi has announced plans to raise Ksh149 billion from the privatisation of state corporations. This is part of a larger domestic financing goal of Ksh613.5 billion in the 2025/2026 Annual Borrowing Plan.
For now, however, the credit crunch remains a major barrier for local businesses trying to stay afloat.
