Kenya Banking Industry: Banks Profit, Small Firms Lack Credit
The Kenya banking industry is enjoying a period of remarkable profitability. The country's largest banks continue to report impressive financial results, even as small businesses struggle to secure affordable loans. For many entrepreneurs, getting a bank loan remains difficult. Yet, for the banks themselves, business has rarely looked better.
This raises an important question: How can banks continue making record profits when the businesses that depend on them for financing are struggling?
The answer lies in how banks manage risk, where they invest their money, and how technology is changing the lending business.
Banks Are Making More Money Than Ever
Kenya's banking industry has become one of the most profitable sectors in the country's economy.
According to the Kenya Bankers Association's State of the Banking Industry Report 2026, banks recorded a combined profit before tax of KSh306 billion in 2025. This represented a 17.6% increase from the previous year.
The performance was supported by lower funding costs, improved liquidity, stronger lending activity and better management of operating expenses.
Some of the country's largest lenders have also reported impressive results:
- Equity Group Holdings recorded a profit of KSh75.5 billion for 2025, representing a 55% increase from the previous year.
- KCB Group reported a profit of KSh68.35 billion.
These figures show that the Kenya banking industry is doing well financially.
However, profitability does not necessarily mean that businesses are finding it easier to access credit.
For many small business owners, the experience is quite different.
Small Businesses Are Still Struggling to Borrow
Small and medium-sized enterprises (SMEs) are important to Kenya's economy. They provide employment, support local communities and contribute to economic growth.
Yet, accessing formal financing remains a major challenge.
Many small businesses operate without audited financial statements, formal accounting systems or assets that banks can accept as collateral. Some generate regular income but cannot provide the documentation required by traditional lenders.
Banks are understandably concerned about repayment. Lending money without reliable information about a borrower's financial position increases the possibility of default.
However, this creates a difficult situation.
A business needs financing to expand, purchase inventory, employ additional workers or manage temporary cash shortages. Without access to credit, its growth becomes limited.
The problem is that banks often prefer businesses that have already achieved a certain level of financial stability.
In other words, businesses that need money to grow may struggle to qualify. Established businesses with stronger financial records have a better chance of getting loans.
The gap between these two groups is becoming increasingly important.
The Business of Avoiding Risk
Banks make money primarily through lending, investments, fees, and other financial services. However, lending comes with risks.
When a customer borrows money and fails to repay, the bank loses money. It may also have to set aside additional funds to cover potential losses.
This explains why banks are becoming more careful about who receives their money.
The Kenya banking industry has faced considerable pressure from rising non-performing loans (NPLs). In 2024, the industry's gross non-performing loan reached a ratio of 16.4%, according to figures reported in the State of the Banking Industry Report 2025.
Such figures make banks more cautious.
But there is another side to this strategy.
Banks can generate substantial returns without taking on the same level of lending risk. Government securities, for example, provide an alternative investment opportunity.
When banks purchase government bonds and Treasury bills, they earn interest from the government. These investments can offer predictable returns and are generally considered less risky than lending to businesses with uncertain cash flows.
The Kenya Bankers Association's 2026 report showed that government securities made up 29.9% of banking industry assets in 2025. That was up from 27.8% in the previous year.
This suggests that banks are maintaining significant exposure to government borrowing.
For lenders, this can be an attractive business decision.
For small businesses, however, it creates another concern. When banks find government securities more attractive than lending to smaller enterprises, private businesses may struggle to obtain the financing they need.
Mobile Loans Have Changed the Lending Business
Technology has introduced another dimension to Kenya's financial industry.
Mobile money services, particularly M-PESA, have transformed how Kenyans send, receive and manage money.
They have also created new opportunities for digital lending.
Unlike traditional banks, digital lenders can use transaction histories, repayment records and other financial information to assess borrowers.
This has made it possible to provide small loans to people who may not qualify for conventional bank financing.
For millions of Kenyans, borrowing money through a mobile phone is faster and more convenient than visiting a bank.
However, convenience comes with challenges.
Some digital loans carry high interest rates, while borrowers with irregular incomes can struggle to meet repayment deadlines. Repeated borrowing can also create a cycle of debt.
This is why Kenya is paying closer attention to consumer protection and responsible lending.
In July 2026, TechCabal reported that Safaricom was exploring opportunities to expand access to affordable credit through M-PESA. The company sees an opportunity to serve customers and businesses that traditional banks consider too risky.
The idea is simple: use financial transaction data to understand borrowers better.
A small shop owner may not have audited accounts, but their daily mobile money transactions could provide useful information about business performance.
This could help lenders make better decisions.
The New Competition: Data and Financial Inclusion
The future of lending may depend less on how much information a borrower can provide on paper. It may depend more on how well financial institutions can make sense of the data available.
Banks have traditionally relied on collateral, employment records, credit histories and audited financial statements.
These methods remain useful, but they do not always capture the financial activities of informal businesses.
Technology offers alternatives.
Mobile money transactions, digital payments, supplier records and sales histories can help lenders understand how businesses operate.
For example, a retailer who receives regular payments through a mobile platform may have a consistent business cash flow, even without formal financial statements.
With appropriate safeguards, this information could support more inclusive lending decisions.
However, technology cannot solve every problem.
A business may have thousands of transactions but still lack enough income to repay a loan. Data can help lenders understand financial behaviour, but it cannot create money that does not exist.
Banks in the Kenya banking industry must therefore combine technology with proper credit assessment.
What This Means for Kenya's Economy
The profitability of Kenyan banks is good news for investors and the wider financial system. Strong banks can withstand economic shocks, invest in technology and support economic development.
But profitability should not be the only measure of success.
Banks also have a responsibility to support productive economic activity. Small businesses need affordable financing to expand, create employment and contribute to national development.
There are encouraging signs.
The Kenya Bankers Association reported that banks disbursed KSh326.5 billion to small enterprises in 2025, more than twice their annual lending commitment of KSh150 billion.
The association also reported that 73.4% of outstanding MSME credit was collateralised.
These figures suggest that banks are gradually exploring new ways to finance businesses that cannot provide traditional collateral.
Still, the challenge is far from over. Women-led enterprises, for example, accounted for 46% of unique MSME borrowers but only received 25% of outstanding MSME credit.
Access remains uneven.
The Next Wave of Banking
Kenyan banks have become perfect at protecting their profits. The next challenge is ensuring that this financial strength translates into broader economic opportunities.
The industry must find a better balance between profitability and access to credit.
Banks need stronger risk assessment systems, more flexible lending products and better ways to understand businesses operating outside the formal economy.
Digital lenders and mobile money platforms can help close some gaps, but affordability and responsible lending must remain priorities.
In the end, the Kenya banking industry should be judged by more than its annual profits.
It should also be judged by the businesses it helps grow, the jobs it helps create and the opportunities it makes possible.
Kenyan banks may have mastered the business of avoiding losses.
Now, they must demonstrate that they can also make money by financing the businesses that require it most.
