Study on MSME Loan Performance

ANALYSIS OF CREDIT DATA ON MSMEs REPORTED

TO CREDITINFO CRB BETWEEN 2019-2023
ANALYSIS OF CREDIT DATA ON
MSMEs REPORTED TO CREDITINFO
CRB BETWEEN 2019-2023
© 2024

CONTENTS
ABBREVIATIONS.................................................................................... 5 3. MSME LOAN PERFORMANCE ................................. 16
ACKNOWLEDGEMENT....................................................................... 6 3.1 Chapter Summary ................................................................ 16
1. INTRODUCTION.......................................................... 8 3.2 Total Credit To MSMEs......................................................... 17
1.1 Credit Information Sharing Initiative................................ 8 3.3 Sectoral Analysis..................................................................... 18
1.2 Kenya’s Credit Market........................................................ 9 3.3.1 Disbursement Trends by Industry of MSME ................... 18
1.3 MSMEs in Kenya.................................................................10 3.3.2 Yearly Disbursement Trends by Industry of MSME........ 19
1.3.1 Definition of MSMEs in Kenya:........................................10 3.3.3 Yearly Performance of Loan Repayments........................ 20
1.3.2 Credit Access for MSMEs.................................................11 3.3.4 Performance By Sector......................................................... 21
3.4 Loan Type Analysis................................................................ 22
2. OBJECTIVES AND SCOPE OF THE STUDY.......... 13 3.4.1 Loan by Type of Loan (Digital versus Non-Digital
2.1 Objectives Of The Study.................................................. 13 Loan)........................................................................................ 22
2.2 Scope of Data Analysis..................................................... 14 3.4.2 Loan By Purpose (Loan Product)....................................... 24
2.2.1 Credit Data Reporting to CRBs - Data 3.4.3 Performance By Loan Product Type................................. 25
Specification Template..................................................... 14 3.4.4 Performance By Year of Loan............................................. 26
2.2.2 Available Data Resources at Creditinfo CRB............... 15 3.4.5 Debt Fatigue and Self-Cure Rate....................................... 28
2.2.3 Data Extraction and Preprocessing............................... 15 3.5 Collateral Analysis.................................................................. 29
2.2.4 Data Analysis and Visualization...................................... 15 3.5.1 Analysis By Secured or Non-Secured Status................... 29
3.5.2 Average Contract Size by Type of Collateral .................. 31
3.5.3 Default Risk by Secured or Non-Secured Status ........... 32
3.5.4 Correlation between types of assets financed
(secured versus unsecured) and loan performance....... 33
3.5.5 Effectiveness of guarantors on loan performance...... 34 5. RECOMMENDATIONS........................................................ 48
3.5.6 Credit Score Performance on MSME Loans................ 36 5.1 RECOMMENDATIONS FROM THE DATA
3.6 Demographic Analysis..................................................... 38 ANALYSIS INSIGHTS................................................................... 48
3.6.1 Disbursements By Gender Of Proprietor..................... 38 5.1.1 Use of Credit Scores to Predict Default Risk........................... 48
3.6.2 Disbursement By Gender and Age Group of 5.1.2 Removing Gender Biases in Lending...................................... 48
MSME Proprietor............................................................... 38 5.1.3 Reliance on Immovable Assets in Lending to MSMEs ....... 49
3.6.3 Number of MSMEs By Industry based on Gender 5.1.4 Digital / Technology Use in Lending to MSMEs.................... 49
of Proprietor........................................................................ 40 5.2 RECOMMENDATIONS ON THE BROADER
3.6.4 Total Loans by Industry based on Gender of CREDIT MARKETS....................................................................... 50
Proprietor ........................................................................... 41 5.2.1 Expansion of the Credit Information Sharing mechanism... 50
3.6.5 Past-Due Rates by Sector and by Gender of the 5.2.2 Data Specification Template....................................................... 50
MSME Proprietor.............................................................. 42 5.2.3 Linking of Collateral Registry and Credit Guarantee
3.6.6 Collateral Use by Gender of Proprietor........................ 43 Schemes......................................................................................... 50
3.7 Geographical Analysis...................................................... 44 5.2.4 Training and Capacity Building for MSMEs and Lenders..... 51
3.7.1 Top Ten Towns By Amounts Disbursed to 5.2.5 Enhancement of the CIS ValiData for improved
MSMEs................................................................................. 44 MSME Data Quality...................................................................... 51
5.2.6 Influence Government CIS Policy changes that impact
4. DISSEMINATION WORKSHOP. .............................. 45 lending to women-led MSMEs................................................. 51
4.1 Workshop Design And Participants. ............................ 45 5.3 RECOMMENDATIONS ON ADDITIONAL /
4.2 Workshop Discussion Outcomes................................... 46 FOLLOW UP STUDIES ON THE SUBJECT OF CREDIT
ACCESS FOR MSMEs ............................................................... 52
ENDNOTES ................................................................................. 53

STUDY ON MSME LOAN PERFORMANCE 3

 LIST OF FIGURES

Figure 1-1 MPSR Notices & Searches ................................................................................. 12

Figure 3-1: Total Disbursements by Year ........................................................................... 17
Figure 3-2: Amount Disbursed by Industry of Borrower .................................................. 18
Figure 3-3: Disbursement Trend by Industry Sector (Volumes) ....................................... 18
Figure 3-4: 3.3.2 Yearly Disbursement Trends by Industry of MSME .............................. 19
Figure 3-5: Yearly Performance of Loan Repayments ....................................................... 20
Figure 3-6: Loan Performance by Sector.............................................................................. 21
Figure 3-7: Yearly Disbursement Trend by Loan Type - By Number of Loans................ 22
Figure 3-8: Yearly Disbursement Trend by Loan Type – Value of Loans.......................... 23
Figure 3-9: Year on year Disbursement Trend by Product Type (Volumes)..................... 24
Figure 3-10: Performance by Loan Product Type .............................................................. 25
Figure 3-11: Performance by Year of Loan ......................................................................... 26
Figure 3-12: Debt Fatigue and Self-Cure Rate................................................................... 28
Figure 3-13: Secured vs Unsecured Disbursement Distribution...................................... 29
Figure 3-14: Average Contract Size by Type of Collateral................................................. 31
Figure 3-15: Default Risk by Secured or Non-Secured Status.......................................... 32
Figure 3-16: Correlation between Secured Vs Unsecured Assets & Loan Performance.. 33
Figure 3-17: Yearly Past Due rates by GUARANTOR STATUS - 90+ dpd....................... 34
Figure 3-18: Credit Score Performance on MSME Loans ................................................. 36
Figure 3-19: Disbursement by Gender by Volumes .......................................................... 38
Figure 3-20: Disbursement by Gender by Loan Amount.................................................. 38
Figure 3-21: Subject Count by Industry sector and Gender.............................................. 40
Figure 3-22: Contracts Count by Industry sector vs Gender............................................. 41
Figure 3-23: Past-Due Rates by Sector and by Gender of the MSME Proprietor.......... 42
Figure 3-24: Collateral Use by Gender of Proprietor.......................................................... 43

List of Tables
Table 1: Number of unique borrowers & Loans Issued .................................................... 15

4 CIS KENYA | Towards a more open credit market

ABBREVIATIONS

BRS: Business Registration Services

CBK: Central Bank of Kenya
CGS: Credit Guarantee Scheme
CIK: Creditinfo CRB Kenya
CIP SCORE: Creditinfo Predictor Score
CIS: Credit Information Sharing Mechanism
CIS Kenya: Credit Information Sharing Association of Kenya
CRB: Credit Reference Bureau
DPD: Days Past Due
DST: Data Specification Template
FSD Kenya: Financial Sector Deepening Kenya
JICA: Japan International Cooperation Agency
KAM: Kenya Association of Manufacturers
KBA: Kenya Bankers Association
KNCCI: Kenya National Chamber of Commerce and Industry
MFI: Micro finance institution
MPSR: Movable Property Security Rights Registry
MPESA: Mobile wallet service provided by Safaricom Telco
MSME: Micro Small and Medium Enterprises
MSHWARI: Digital Loan Product based on MPESA wallet

STUDY ON MSME LOAN PERFORMANCE 5

 ACKNOWLEDGEMENT

The Credit Information Sharing Association of Kenya (CIS Kenya) that

undertook this study appreciates Japan International Cooperation Agency
(JICA) for their financial support that was instrumental to the success of the
project. We are highly indebted to Mr. Wachira Ndege whose expertise
was relied upon in the drafting this report. Special thanks are extended to
Jared Getenga and Lemuel Mangla of CIS Kenya; George Oduor and Mercy
Nehema of Creditinfo and Shibata Satoko and Misako Uehara of Deloitte
Japan and JICA respectively for their insights in helping conceptualize the
study and reviewing the report.

Every effort has been made to ensure the accuracy of the information
presented in this report. However, CIS Kenya cannot be held responsible for
any consequences arising from its use for purposes or contexts beyond its
intended scope.

6 CIS KENYA | Towards a more open credit market

About CIS Kenya
CIS Kenya is a voluntary members Association whose broad mandate is to promote
best practices in credit provision. More specifically, the Association plays a leading role
in fostering the growth of the credit market through implementation of an effective
credit information sharing (CIS) mechanism.

About Creditinfo
Creditinfo Kenya is a licensed and regulated entity by the Central Bank of Kenya (CBK).
Under CBK’s legal framework, Creditinfo’s core business is the provision of information
related to credit. We offer services that cover every stage of the customer life cycle,
helping banks and other credit providers evaluate prospective customers, monitor the
performance of existing ones, and manage any debts they may have incurred. Our
approach involves collecting data from a wide array of sources, transforming it to risk
management reports and solutions.

About JICA
Japan International Cooperation Agency (JICA) is an implementing agency
of Japanese official development aid (ODA) for the purpose of supporting the
socioeconomic development, recovery or economic stability of developing regions. It
is chartered with assisting economic and social growth in developing countries and
promoting international cooperation.

STUDY ON MSME LOAN PERFORMANCE 7

 1
INTRODUCTION

1.1 CREDIT INFORMATION MSMEs play a vital role in the economic growth
and development of Kenya, contributing
SHARING INITIATIVE
significantly to employment creation and
Since the rollout of Credit Information Sharing
growth of the economy. However, access
(CIS) in Kenya in July 2010, changes in the legal
to affordable credit remains a persistent
environment have led to the evolution of the
challenge for these businesses, often
CIS mechanism from a negative, bank-only data
impeding their growth and sustainability. CRBs
sharing framework to a full-file comprehensive
have become instrumental in addressing this
one where commercial and microfinance banks
gap by providing lenders with critical data to
participate together with a wide range of non-
assess the creditworthiness of MSMEs.
banks through three licensed credit reference
bureaus (CRBs).
This report, ‘Analysis of MSME Loan
Performance Data held by Creditinfo CRB
The CIS mechanism in Kenya has grown to
Kenya’, examines the trends, patterns, and
largely capture credit data from the licensed and
key insights derived from loan performance
regulated financial sector and is recognised as a
data of MSMEs by sector, demographics,
fundamental part of the credit system as it reduces
formalisation, collateral, product type,
information asymmetry between suppliers and
loan performance, credit scores as well
consumers of credit, thus promoting access to
as geographical distribution of MSMEs.
credit by Micro Small and Medium Enterprises
The findings from this analysis provide
(MSMEs). The mechanism continues to grow
valuable input for policymakers, lenders, and
with the inclusion of other non-regulated credit
stakeholders seeking to enhance financial
providers though significant opportunity remains
inclusion and support the growth of MSMEs in
to incorporate transaction and trade credit data
Kenya.
that would enhance the available data for lending
purposes to MSMEs.

8 CIS KENYA | Towards a more open credit market

 Introduction

1.2 KENYA’S CREDIT

MARKET¹
Kenya’s banking landscape is marked by
robust adoption of digital technology,
which has transformed the delivery of
banking services. Mobile banking, online
platforms, and fintech partnerships
have expanded access to banking
services to a larger portion of the
population, particularly in remote areas
where traditional brick-and-mortar
branches are sparse.

Banks have rapidly adopted new

technologies, which have not only aided
financial inclusion but also paved the
way for innovative financial products.
The sector’s robust mobile banking
penetration is one of the highest in
Africa, making financial transactions and
services more convenient and accessible.

High interest rates and transaction fees

continue to be a significant hurdle, often
making banking services less accessible
for low-income individuals. This economic
segment remains underbanked and faces
difficulties in accessing credit, which is
essential for personal and entrepreneurial
growth.

While urban centers enjoy relatively

sophisticated banking services, rural
areas are often left with limited access
to financial services. This disparity is
further exacerbated by a lack of financial
literacy, which limits the potential
for banking services to make a more
significant impact on the economic health
of these communities.

STUDY ON MSME LOAN PERFORMANCE 9

 INTRODUCTION

1.3 MSMES IN KENYA²

Micro, Small and Medium Enterprises play a
critical role in Kenya’s economic development
and employment creation. The Kenya
National Bureau of Statistics (KNBS) indicates
that there are over 7.4 million MSMEs in the
country, which employ approximately 14.9
million Kenyans in various sectors of the
economy contributing approximately 40% of
the Gross Domestic Product (GDP).

This notwithstanding, MSMEs are deemed

to be particularly risky to lenders since they
encounter multiple challenges namely:
management skills, access to capital and
financing, product market fit, climate
change, macro-economic environment and
geopolitical factors that drive up the cost of
doing business.

Out of the estimated 7.4 million MSMEs in
Kenya, only about 1.4 million are formally
registered with the Business Registration
Services (BRS). This implies that the majority
of MSMEs in Kenya are informally set up and
may not have a legal persona.

Data from the BRS shows that as of 2023

there were 1.4 million registered Business
Names and just over seven hundred
thousand registered as limited liability
companies³.

1.3.1 Definition of MSMEs in Kenya:

Going by the definition in the Micro and Small Enterprises Act, 2012, MSMEs are categorised
based on the number of employees, annual turnover, total assets or capital employed, and the
sector they operate in.
The specific definitions for each category are as follows:

Micro enterprise– Small enterprises – Medium enterprises –

firms with annual firms with Ksh.500,000 firms with Ksh.5 – 100 million
turnover not exceeding - Ksh.5 million annual annual turnover, with between
Ksh.500,000; turnover and with 50-250 employees; in the
employing 1-9 10-49 employees with manufacturing sector, total
people; total assets capital of between assets. investment in plant and
or registered capital Ksh.10 million and machinery or the registered
not exceeding Ksh.50 million in the capital not exceeding Ksh.125
Ksh.10 million for manufacturing sector, million; in the service and
manufacturing sector, and between Ksh.5 agricultural sectors, investment
or not exceeding Ksh.5 million and Ksh.25 in equipment or registered
million in the service million in the service capital not exceeding Ksh.250
and agricultural sector. and agricultural sector. million.

10 CIS KENYA | Towards a more open credit market

 Introduction

1.3.2 Credit Access for MSMEs

MSMEs require efficient access to credit and
financial services to play their role effectively
as significant drivers of employment and
economic growth. However, access to formal
credit channels for MSMEs is hampered by their
level of informality, lack of registration, failure to
update their business information, lack of a legal proposed SME Fund, the Credit Guarantee
persona, and inability to separate them from the Scheme and activation of the Collateral
promoter (as evidenced by the number of sole Registry.
proprietorships).
However, the impact of these interventions
Noted interventions by Government and its is still muted given the reported low number
partners have been the setting up of the Micro of enterprises that have benefited, and the
and Small Enterprises Authority, MSEA, with its amount of credit recorded.

1.3.2.1 Credit Guarantee Scheme4:

The Credit Guarantee Scheme, CGS, was The CGS has demonstrated its ability to support
launched in December 2020 to provide access to credit for MSMEs that had previously
a means to facilitate credit to MSMEs not been able to access credit:
by reducing the risk to lenders through • Since its inception, there are 4108 MSMEs
provision of a guarantee by the Kenyan that have benefited from the scheme.
Government. • Ksh. 6.3 billion mobilized to qualifying
• A credit guarantee scheme is a risk MSMEs against Govt commitment of Ksh.
sharing mechanism that enables the 1.57 billion representing a leverage ratio
Government to bridge this credit gap of 4, i.e. for every Ksh.1 committed under
by leveraging private sector liquidity CGS, Ksh.4 are unlocked in terms of credit
and expertise to minimize pressure to MSMEs.
on the exchequer while managing • 71% went to enterprises that had not
the moral hazard associated with received loans from PFIs before, indicating
direct lending that CGS is enabling access to credit by
• Lenders extend credit out of their otherwise underserved groups.
own funds to eligible MSMEs and
are compensated only a portion of
outstanding amount in case of default
To date there are 7 participating financial
institutions (PFIs) with about 6.2 billion
shillings in disbursements. These
institutions are: Absa Bank Kenya PLC,
Credit Bank, Diamond Trust Bank, KCB
Bank, NCBA Bank, Stanbic Bank, and Co-
Ksh 6.2
operative Bank.
billion
The amount of funds
disbursed to 7 participating
financial institutions (PFIs)

STUDY ON MSME LOAN PERFORMANCE 11

 INTRODUCTION

1.3.2.2 Collateral Registry9:

The Movable Property Security Rights Registry (MPSR), also
known as the Collateral Registry, is the official government
register of security rights in movable property. It is digitized
and notice-based, established in 2017 to replace the previous
Chattels Registry.

The MPSR Registry is domiciled at the BRS and facilitates

granting by borrowers of a security right over assets in favor of
lenders to secure loan repayment. The MPSR register facilitates
notification to lenders that the movable assets have a lien over
them.

The chart below gives a snapshot of the number of notices

issued and searches carried out over a five-year period.

Figure 1-1 MPSR Notices & Searches

MPSR Notices & Searches
Notices Searches

The use of the registry has gradually grown after a dip in 2020
probably as an effect of Covid-19 on business activity.

1.3.2.3 Government Loan Funds: 1.3.2.4 Private Sector Sources of

The Government has established Credit :
several loan funds under various MSMEs have access to private
ministries or departments aimed sources of credit that are either
at availing credit to MSMEs. formal or informal ranging from
These include the Youth Fund6, micro credit institutions, digital
the Women’s Fund7 and the credit providers (now required to
Hustlers Fund8 . Data relating to be regulated by CBK) and non-
the effectiveness of these Funds deposit taking savings and credit
as alternate sources of credit is cooperatives. These institutions are
not readily available. However, currently outside of the formal credit
there are proposals to merge these information sharing initiative as they
funds to reduce their duplication are not mandated to participate in
and maximize their impact and the mechanism.
effectiveness as sources of credit to
MSMEs.

12 CIS KENYA | Towards a more open credit market

 2
OBJECTIVES AND SCOPE
OF THE STUDY

2.1 OBJECTIVES OF THE STUDY

With JICA’s support, CIS Kenya The objectives of this study were to:
set out to analyse MSME credit • enhance the understanding of MSMEs by
trends using CRB data to examining loan performance data, enabling
better understand the sector’s lenders to make informed decisions and provide
challenges and opportunities. The targeted credit support.
study outcomes were designed
to inform strategies to improve • establish approaches for future utilization of
MSME access to credit.
CRB data analysis for improved understanding
MSMEs, including identifying opportunities
By focusing exclusively on MSMEs,
for additional data points and enhanced
the study aimed at identifying
key drivers of successful lending standardization of the data template.
to this vital economic sector
and provide unique insights • provide empirical evidence for policy reforms in
into the specific challenges and the Kenyan credit market.
opportunities within the MSME
lending landscape. • identify patterns, trends, and risk factors
associated with MSMEs to better inform risk
premiums of the credit guarantee fund in Kenya.

STUDY ON MSME LOAN PERFORMANCE 13

 OBJECTIVES AND SCOPE OF THE STUDY

2.2 SCOPE OF DATA ANALYSIS

Credit bureau data reported on • Industry of the borrower - loan performance
MSME loans over the five-year data across different industry sectors
period 2019-2023 was anonymised, • Loan type- performance of different loan types
aggregated and analysed over the • Collateral use- correlation between types of
following areas: assets financed and loan performance
• Demographic– gender distribution
• Geographical distribution - loan performance
data across different regions

From the analysis descriptive statistics for key variables were identified to:

Visualize trends and Generate insights Organize a dissemination

patterns using graphs and commentaries for seminar for relevant
and charts. publication in the final stakeholders.
report.

2.2.1 Credit Data Reporting The DST’s 17 files are shown in the table below. The
to CRBs - Data Specification highlighted files are the ones that were used in the
Template analysis for MSMEs that is in this report:
Credit data is submitted to the DST FILES
bureaus via a standard Data
Specification Template (DST). The CE Individual Consumer Employment Information
DST contains both mandatory CI Non-Individual Consumer Information file
and non-mandatory fields to help GI Guarantor Information File
identify the data subject and the BC Bounced Cheque Information File
relevant credit information. CA Credit application Information File
SI Stake Holder Information file
The range of reporting institutions FA Fraudulent Activity file
include the regulated entities by CR Collateral Register Information File
the CBK including all licensed GG Group Guarantee File
DP Daily Payment Information
commercial banks and microfinance MF New Mobile Facilities File
banks (MFBs) that are mandated FC Historical Credit Information Update File
to report at least once a month all CU Contact Upload File
their credit data. Other sources DI Delink-IDs File
include third party credit providers LI Link-Delink Accounts File
that have been approved to submit ME Merging Accounts
data to the bureaus by the CBK. DE Deletion File
This data is then processed by the This data that has been aggregated to generate the
bureaus to generate credit report research and analysis for this report.
profiles of the borrowers.

14 CIS KENYA | Towards a more open credit market

 Objectives and Scope of the Study

2.2.2 Available Data Resources at by the 73 data providers both mandated

Creditinfo CRB and other institutions. This data has been
Creditinfo, as the credit bureau accumulated over the study period of
providing the analysis, has accumulated 2019-2023 and beyond since the advent of
significant amounts of data as reported the CIS mechanism in 2010.

A summary of this data is shown in the table below:

Table 1: Number of unique borrowers & Loans Issued

TOTAL UNIQUE BORROWERS 19.5 million

Of which corporate entities 500,000
Of which individuals and micro enterprises 19 million
TOTAL NO. OF LOANS ISSUED 360 million
TOTAL AMOUNT DISBURSED KSHS. 17.5 trillion

2.2.3 Data Extraction and 2.2.4 Data Analysis and

Preprocessing Visualization
Data extraction from the CRB database Cross tabulations, bar charts, and
was conducted using Structured Query trend plots were used to analyze
Language (SQL) focusing on data and interpret the extracted data and
from January 2019 to end of 2023 and uncover relationships and patterns
specifically on MSMEs. between different variables, highlighting
relationships within the dataset.
The identification of MSMEs within the
bureau’s data, as submitted by financial Bar charts were used to visually
institutions followed a dual approach: represent the analyzed data, allowing for
comparisons of trends and proportions
across distinct categories over the five-
• Loans to MSMEs were year period.
identified using the
company registration Together, these analytical methods
number. allowed for a comprehensive exploration
of the dataset, facilitating meaningful
insights and robust conclusions in the
• However, recognizing subsequent results and presentations.
that micro and small
enterprises are not always
registered, they were also
identified based on the
loan products they utilize,
such as business working
capital and trade finance.

STUDY ON MSME LOAN PERFORMANCE 15

 3
MSME LOAN PERFORMANCE

3.1 CHAPTER SUMMARY

This chapter provides a comprehensive and
detailed analysis of credit data reported between
2019 and 2023 on MSME loans.

The analysis focuses on five main study areas: To determine and arrive at credit
to MSMEs certain assumptions
Sector of the MSME have been made on the credit
data reported by lenders
specifically based on the purpose
designated for the loan.
Type of loan given to MSME
Where the loan purpose has been
given for business purposes for
instance asset finance, working
Collateral used for the loans
capital, etc., that loan has been
classified as an MSME loan for
the purposes of this analysis.

Gender of the MSME owners

Geographical location of the

MSME

16 CIS KENYA | Towards a more open credit market

 MSME Loan Performance

3.2 TOTAL CREDIT TO MSMES

This analysis provides a snapshot of credit to MSMEs over a five-year period
between 2019 and 2023 for the commercial and microfinance banks.

The chart below gives the total credit given to MSMEs on a year-on-year basis
compared to the entire credit for that year.

Figure 3 1: Total Disbursements by Year

TOTAL DISBURSED BY YEAR

Credit to MSMEs as a proportion of total loans has remained

low over the years at less than fifty percent of total amounts
disbursed. There has been a gradual decline in total credit
issued to MSMEs from a high in 2019 with the value remaining
relatively the same in subsequent years.
Key insight:
The average lending to
MSMEs is consistently
less than half of total
credit despite efforts
to grow lending to this
segment. This points at
continuing challenges
for lenders to extend

0.85 Trillion
loans to MSMEs and
for MSMEs to access
credit.
The total credit issued to MSMEs in
2019

STUDY ON MSME LOAN PERFORMANCE 17

 MSME LOAN PERFORMANCE

3.3 SECTORAL ANALYSIS

This analysis provides a snapshot of how this analysis they have been retained
different sectors compare in terms of as reported.
loan disbursement and performance over
the period. The sectors are based on 3.3.1 Disbursement Trends by
the reported industry of borrower. The Industry of MSME
appropriateness and accuracy of some of The chart below represents the total
the designated sectors in the DST (such amount of credit extended to various
as ‘Government’) have been the subject of sectors over the period 2019-2023.
discussion. However, for the purposes of

Figure 3-2: Amount Disbursed by Industry of Borrower

Amount disbursed by Industry Of Borrower

The Trade sector

is by far the largest
recipient of credit by
value at 21% followed
by Manufacturing at
8% and Transport and
Communication at 5%.
This suggests that most
small businesses are in
the Trade sector.

Figure 3-3: Disbursement Trend by Industry Sector (Volumes)

Disbursement trend by Industry Sector (Volumes)

Key insight:
the majority of
MSME loans are
given to the Trade
and Services sector
where the value and
volume are largest.
This may suggest
that most MSMEs
that are able to
access credit from
banks and MFBs are
in these two sectors.

When looked at from the number of loans issued the Trade and Other Services have the highest
volume of loans issued accounting for over 32% of loans to MSMEs.

18 CIS KENYA | Towards a more open credit market

 MSME Loan Performance

3.3.2 Yearly Disbursement Trends by Industry of MSME

Figure 3 4: 3.3.2 Yearly Disbursement Trends by Industry of MSME
DISBURSEMENT TREND BY INDUSTRY SECTOR
(AMOUNT DISBURSED ANNUALLY VERSUS FIVE-YEAR TOTAL PER SECTOR)

The chart above shows the amount of credit disbursed to various Key Insight:
sectors over the five-year total for the sector to demonstrate Many sectors experienced
the trends over the period. The total change for each sector volatility during the five-year
implies the value of credit extended to that sector changed from
period greatly impacted on
year to year.
by Covid-19 disruptions.
Overall Trends: Though recovery was
• 2019 to 2020: Many sectors experienced volatility, which witnessed from 2021, the
could be attributed to pre-pandemic and pandemic-related hospitality and services
disruptions with most sectors seeing spikes in 2019 before sectors continued to
declining. struggle. 2023 reflected
• 2021 to 2022: The data reflects the gradual recovery from a mixed picture, with some
the pandemic, but certain sectors, particularly other services, sectors showing strong
hospitality sectors like Hotels and Restaurants, continued to recovery and growth while
struggle. others face continued
• 2023: Financial Intermediaries, Government10, Transport,
challenges potentially due to
and Communication saw growth, reflecting a shift toward
rebuilding infrastructure and financial activity, while other economic challenges such as
sectors like Agriculture, Trade, and Real Estate saw a decline inflation or higher interest
in lending. rates.

STUDY ON MSME LOAN PERFORMANCE 19

 MSME LOAN PERFORMANCE

3.3.3 Yearly Performance of Loan Repayments

Figure 3 5: Yearly Performance of Loan Repayments
Yearly Proportion Of Loans that Remained Unpaid after 90 days-(Amount)

The graphs show a cohort of clients whose loans were

90+ days past due. The percentage is the value of
90 days past due outstanding loans against the total
amount disbursed to identify the level of distressed
loans trends over the years.

An analysis of the loan data year by year (2019–2023) is Key Insight: The
as follows: performance of loans was
• 2019/2020 had a moderate level of overdue loans impacted over the period
suggesting that repayment issues were present but from Covid-19 disruptions
manageable. The outstanding proportions indicate with amount disbursed
that while loans were overdue, efforts to manage declining between 2020
them were relatively consistent compared to the and 2021. Although the
challenges seen in later years. loan amount disbursed
• 2020/2021 was severely impacted by the COVID-19 started to rise again after
pandemic. The significant rise in outstanding 2021, the outstanding
proportions shows a sharp increase in defaulting loan proportion
loans. The inability of borrowers to repay loans can steadily decreased,
be attributed to economic disruptions during the indicating stronger loan
pandemic. The proportion of loans unpaid after 90 performance or better
days spiked in 2021 to 7%, suggesting increased borrower solvency
difficulties in repayment during that year. This in recent years. This
indicates a challenging period, likely due to the suggests that economic
ongoing economic recovery struggles. recovery from the
• 2021/2023 There is a notable decline in both the pandemic was taking
loan amount and the proportion of unpaid loans effect, leading to better
from 2021 to 2023, with the proportion of unpaid loan management and
loans falling to 3% in 2023, indicating improving loan repayment.
repayment trends.

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 MSME Loan Performance

3.3.4 Performance By Sector

Figure 3 6: Loan Performance by Sector

Proportion Unpaid after 90DPD within 12 months within Industry

Sectors

This dataset provides an analysis of loans across various industry

sectors, focusing on loans that are 90+ days past due. The chart
displays the proportion of loans that remained unpaid after 90
days past due (90 DPD) within 12 months, categorized by different
industry sectors.
Key Insight:
Key Trends: The data highlights
• The Building & Construction sector has the highest proportion sectors with
of outstanding loans at 18%, suggesting significant repayment repayment risks
challenges in this sector despite moderate loan disbursement. are Building &
• Mining & Quarrying and Hotels & Restaurants also have a Construction,
high outstanding proportion at 14% and 13% respectively, Mining & Quarrying,
despite very small loan disbursements, indicating higher risks in while Trade
these industries. demonstrates
• Trade has the highest loan amount disbursed but maintains a strong loan
relatively low outstanding proportion of 5%, indicating stronger performance
loan performance. despite large
• The Manufacturing, Water, and Financial Intermediaries disbursements
sectors exhibit low proportions of unpaid loans (2%-3%), suggesting it is a
suggesting better repayment performance in these sectors. lower risk sector.
• Sectors like Agriculture and Real Estate show moderate
proportions of outstanding loans (around 5%).

STUDY ON MSME LOAN PERFORMANCE 21

 MSME LOAN PERFORMANCE

3.4 LOAN TYPE ANALYSIS

The analysis below reviews loans by type of loan designated as digital or non-digital.
Digital loans are those that are primarily accessed via mobile channels as opposed to
the traditional process of loan application and disbursement i.e. designated non-digital
loans.

3.4.1 Loan by Type of Loan (Digital versus Non-Digital Loan)

The data presents a comparative analysis of digital loans and non-digital loans in terms
of volume and value over the period from 2019 to 2023.

Data Description
• Volumes: Represents the number of loans issued.
• Values: Represents the total monetary value of the loans issued.

Figure 3 7: Yearly Disbursement Trend by Loan Type - By Number of Loans

Yearly Disbursement Trend by Loan Type - By Number

Volume of Loans
• Digital Loans Trend:
o There was an initial increase in digital loan volumes
from 2019 to 2021, peaking in 2021. This was followed
by a decline in 2022 and 2023, possibly due to
market saturation, changes in consumer behavior, or
regulatory impacts.

• Non-Digital Loans Trend:

o The volume of non-digital loans showed a decrease
in 2020, a slight recovery in 2021 and 2022, and then
a decrease again in 2023. This indicates a fluctuating
trend but without sustained growth.

2021
The peak year
in digital loan volumes

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 MSME Loan Performance

Figure 3 8: Yearly Disbursement Trend by Loan Type – Value of Loans

Yearly Disbursement Trend by Loan Type – Valuers

Value of Loans
• Digital Loans Trend:
o The value of digital loans decreased in 2020 but saw an increase in
2021 and 2022. The value then decreased again in 2023, reflecting Key Insight:
volatility in trend, which could be attributed to changes in loan These trends
sizes, interest rates, or borrower demand. provide insights into
• Non-Digital Loans Trend: the evolving nature
o The value of non-digital loans consistently decreased from 2019 of loan distribution
to 2022. However, there was a slight increase in 2023, indicating and value, reflecting
a possible recovery or increase in loan amounts or new loan broader changes in
approvals. financial technology
adoption and
Summary of Trends and Patterns economic conditions.
• Digital Loans: There has been a
o Volume: The increase in 2021 suggests a strong adoption or strong drive in the
increased demand for digital loans, but subsequent decreases financial sector to
indicate potential market saturation or other influencing factors. use mobile channels
o Value: Volatility with fluctuations in the loan value was evidenced as the means to
by decrease in 2023, probably due to a combination of factors enable customers
including reduced loan sizes or changes in lending conditions. to access loan
• Non-Digital Loans: facilities. This may
o Volume: A fluctuating trend portrayed a notable decrease in have expanded
2020, and gradual recovery followed by another decline in 2023. the ability of lower
o Value: The consistent decrease from 2019 to 2022, with a slight value loans to be
increase in 2023 suggests a reduction in the overall value of non- issued and increased
digital loans, possibly due to decreased lending volumes or the reach of these
changes in the loan portfolio. loans to previously
unbanked.
Comparative Insights: The growth of digital
o Digital loans generally have a higher volume of transactions loans products like
compared to non-digital loans, reflecting their growing popularity Mshwari and Fuliza
and accessibility. that are supported
o Non-digital loans, while having a lower volume, hold significantly by MPESA are a case
higher value, indicating they may involve larger loan amounts or are in point.
distributed among a smaller number of high-value borrowers.
o The overall decrease in loan values for both types in 2023 suggests
potential economic pressures or shifts in the lending environment.
STUDY ON MSME LOAN PERFORMANCE 23
 MSME LOAN PERFORMANCE

3.4.2 Loan By Purpose (Loan Product)

The analysis looks at the main products and the trends of disbursed amounts over the five-year period.
Figure 3 9: Year on year Disbursement Trend by Product Type (Volumes)

Summary of Major Trends

• Growth in Overdraft, Trade and Insurance Premium
Finance Facilities: The sharp rise in overdrafts and Key Insight:
growth in trade and insurance premium finance The data reveals
facilities indicate an increased demand for flexible significant shifts in loan
and short-term financing solutions, likely to support product usage over
liquidity and business operations. the five-year period,
reflecting evolving
borrower needs,
• Decline in Mobile Banking Loans and Asset Finance economic conditions,
Facilities: Despite their early popularity, mobile loans and the financial product
have seen a decline, potentially due to market shifts landscape. Products
or regulatory impacts. Asset Finance Facilities have like overdrafts and
shown a steady decline over the period from earlier trade finance facilities
years. are becoming more
prominent, while
• Fluctuating Demand for Business Expansion and traditional loans like
Working Capital Loans: Business expansion and asset finance and
working capital loans remain essential, with demand mortgages are declining
in popularity. The trends
fluctuating based on economic conditions, peaking
indicate that borrowers
during recovery periods. are seeking more flexible
and accessible financing,
• Decline in Credit Card and Mortgage Loans: Reduced particularly in uncertain
mortgage loans and credit cards suggest either economic conditions.
economic constraints affecting long-term investments
or shifting borrower preferences.
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 MSME Loan Performance

3.4.3 Performance By Loan Product Type

This data provides a detailed look at various loan product types, focusing on their performance
in terms of loans that went 90+ days past due.
Figure 3 10: Performance by Loan Product Type

• General Observations:
o High Delinquency Risk: Mortgage Loans,
Business Expansion and Working Capital
Loans, exhibit high proportions of delinquent Key Insight:
This analysis
loans.
suggests that
o Group Loans Concern: The group loans different loan
product type shows a peculiar trend where the products exhibit
proportion delaying in payment is significantly different risks of
higher than any other product. delinquency as
o Lower Delinquency Risk: Mobile Banking, loans age beyond
Insurance Premium Financing, and Trade 90 days. Managing
and Asset Finance Facilities have the lowest these risks is critical
delinquency amongst all products suggesting to improving overall
these may be lower-risk products. loan performance

STUDY ON MSME LOAN PERFORMANCE 25

 MSME LOAN PERFORMANCE

3.4.4 Performance By Year of Loan

The dataset represents loan data for MSMEs focusing on loans with amounts 60+ and 90+ days past
due
Figure 3 11: Performance by Year of Loan

Yearly Propotion of Loans that Remained Unpaid-(Values)

An analysis of the loan data year by year (2019–2023) is as follows:

2019
2020
2021
2022
2023

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 MSME Loan Performance

2019
had a moderate level of 2020
2
overdue loans, with a relatively was severely impacted by
high proportion of both amounts the COVID-19 pandemic. The
and counts remaining unpaid. significant rise in outstanding
This suggests repayment issues proportions and counts shows a
were present but manageable. The sharp increase in defaulting loans.
outstanding proportions indicate that The inability of borrowers to repay
while many loans were overdue, loans can be attributed to economic
efforts to manage them were disruptions during the pandemic.
relatively consistent compared Loan repayment deteriorated,
to the challenges seen in making this year one of the
later years. worst performing.

1
2021
saw further
3
worsening in loan
repayment behavior,
especially in the 90+ days
category where the outstanding
amount is highest among all years.
While the number of loans in default
(count) reduced, the proportion of
outstanding amounts was very high,
showing that although fewer loans
were overdue, the ones that were had
large amounts remaining unpaid.
This indicates a challenging year,
likely due to the ongoing
economic recovery
struggles.

2022
showed marked
improvement in loan
4
In repayment. The outstanding
2023, there was amount proportion dropped
continued stabilization considerably, especially in the
in loan repayment 60+ days category. This suggests
behavior. Though not as that economic recovery from the
good as 2022, the outstanding pandemic was taking effect, leading
amount proportion remained to better loan management and
relatively low compared to earlier repayment. Despite some loans
years, indicating a consistent remaining unpaid, this year
recovery. The lower outstanding stands out as one of the best

5
count proportion also points performers in terms of loan
to improved repayment recovery.
behavior, though challenges
remained.
STUDY ON MSME LOAN PERFORMANCE 27
 MSME LOAN PERFORMANCE

3.4.5 Debt Fatigue and Self-Cure Rate

Figure 3 12: Debt Fatigue and Self-Cure Rate

This dataset reflects the proportion of loans that remain

outstanding past various overdue thresholds (15, 30, 45, 60, Key Insights:
and 90 days) for loans disbursed between 2019 and 2023. The The longer a loan
green line represents borrowers that were able to repay and remains past due
return to performing status for each category of days past due the higher the
while the black line represents those that were unable to and chances the loans
remained past due at each threshold. will remain unpaid
over a longer
period with the
borrower unable
to repay the
facility on time.

91%
Debt fatigue rate on
90days’ loan for loans
disbursed between 2019 -2023

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 MSME Loan Performance
3.5 COLLATERAL ANALYSIS
3.5.1 Analysis By Secured or Non-Secured Status
This section analysis loans by their secured or non-secured status

Figure 3 13: Secured vs Unsecured Disbursement Distribution

Secured vs Unsecured Disbursement Secured vs Unsecured Disbursement
Distribution - Volumes Distribution - Values

The charts above provide a comparison between secured and unsecured loans in terms of the total
amount disbursed and the number of loans disbursed.

Key Observations:
Unsecured loans significantly outweigh
secured loans in terms of the total number
of loans disbursed. The total number of
loans for unsecured is over 13 million
compared to around 400 thousand for
secured loans.

The opposite is true for the loan values

with secured loans having a far higher
amount disbursed at over 3 trillion shillings
while unsecured loans only account for 0.16

0.4M
trillion.

This suggests that the loan value for

unsecured loans is very small as compared
The total number of Secured to the secured loans also pointing at the
loans disbursed proliferation of digital loans that have a
higher volume and lower disbursed amount
per the charts below.

STUDY ON MSME LOAN PERFORMANCE 29

 MSME LOAN PERFORMANCE

Volumes of Secured vs
Unsecured Disbursement
Distribution

Key Insight:
Overall, the analysis
highlights that unsecured
loans dominate in terms
of the number of loans
disbursed to MSMEs. This
points to the growth of
digital lending in the financial
sector with a strong reliance
on the mobile channels to
drive credit growth.

Values of Secured vs
Unsecured Disbursement
Distribution

12.73M
The total number of digital loans
disbursed

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 MSME Loan Performance

3.5.2 Average Contract Size by Type of Collateral

Figure 3 14: Average Contract Size by Type of Collateral

Average Contract size by Collateral Types

Total loans Average Loan Size

Trends and Patterns Identified:

1. Inverse Relationship Between Loan Size and Volume:
o Higher-value collateral types like shares, buildings, and
debentures have fewer loans but larger average loan
sizes. This reflects their use in larger, more significant
financial transactions.
o Lower-value collateral, such as chattels, motor vehicles
and insurance policies, have smaller loan sizes but
much higher volumes. This suggests these are used
more frequently for everyday borrowing or smaller-scale Key Insight:
financial needs. The data highlights
the different ways
collateral influences
2. Real Estate Dominance: both the volume
o Collateral types linked to real estate (buildings and land) and size of loans.
are prominent in terms of both volume and loan size. High-value collateral
The substantial borrowing activity reflects the continuing types like shares and
buildings are used for
reliance on physical assets in securing financing for large-scale financial
MSMEs. transactions, while
smaller collateral types,
3. Varied Use of Financial Instruments: such as motor vehicles
o Financial instruments like debentures and bonds are used and insurance policies,
for moderate loan sizes. Their role in securing medium- cater to more frequent,
lower-value loans. The
sized loans demonstrates their importance for borrowing overall pattern shows
though not as prevalent as real estate-backed loans. a diverse lending
environment, where
4. High Frequency of Low-Risk Loans: the choice of collateral
o Insurance-backed loans, while the smallest in size, significantly impacts
the scale and purpose
dominate in terms of the number of loans issued. of the loans issued.
This reflects their use in personal finance and low risk
borrowing. This type of collateral is easily accessible and
popular for small, short-term loans.
STUDY ON MSME LOAN PERFORMANCE 31
 MSME LOAN PERFORMANCE

3.5.3 Default Risk by Secured or Non-Secured Status

Figure 3 15: Default Risk by Secured or Non-Secured Status
90 Days Past Due Trends by Year
Secured V/S Non-Secured Loans

Key Trends and Patterns Identified

Pandemic Impact (2020):

• Both secured and unsecured loans saw a sharp increase in
delinquency rates during 2020. This is likely due to the economic
disruptions caused by COVID-19, which impacted borrowers’ Key Insight:
ability to repay loans across all sectors. The data shows a clear
impact of the pandemic
Post-Pandemic Recovery (2021-2023): on loan delinquency
• Both categories saw improvement in 2021, with delinquency rates, with 2020
rates dropping significantly. Secured loans benefited from their being a challenging
collateralized nature, while unsecured loans experienced a year for both secured
stronger rebound, reflecting increased borrower stability. and unsecured
o By 2023, the rates for secured loans had dropped for 90 days loans. However, the
past due, indicating an improvement in loan performance. recovery in 2021 and
o Unsecured loans, despite being riskier, also saw improvement 2023 suggests that
in 2023, with delinquency rates falling for 90 days past due, borrowers have been
suggesting enhanced borrower discipline and economic able to regain financial
recovery. stability, supported by
improving economic
2022 Economic Pressures: conditions. Secured
• Both secured and unsecured loans experienced higher loans fared better
delinquency rates in 2022, likely due to the global inflation crisis overall due to the
and higher interest rates. The impact was more pronounced for security of collateral,
unsecured loans, with the delinquency rate peaking in 2022. while unsecured loans
• Secured loans also saw a spike in 2022, but these loans performed saw more volatility,
better overall due to the collateral backing them. especially during
2022, due to their
Stability in 2023: inherently higher risk.
• 2023 marked a return to stability, as delinquency rates across both Nonetheless, both
secured and unsecured loans improved. Secured loans had lower categories have shown
rates overall due to the presence of collateral, but unsecured positive trends as the
loans also showed strong signs of recovery, reflecting the easing economy stabilizes.
of economic pressures and borrowers’ improved ability to manage
debt.
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 MSME Loan Performance
3.5.4 Correlation between types of assets financed (secured versus unsecured) and loan
performance.
Figure 3 16: Correlation between secured vs unsecured assets & loan performance

Amount Unpaid after 90DPD within 12 months

The chart illustrates the trends in loan amounts that remain

unpaid 90 days past due (DPD) within a 12-month period
for both Secured and Unsecured loans over different
years. The chart represents the amount disbursed in
billions against the loan amount past 90 DPD in billions.

Secured Loans:
From 2019 to 2023, the outstanding amount for secured
loans past 90 DPD shows a gradual increase over these
years, but it remains consistently lower than in the
unsecured category.

Unsecured Loans: Key Insight:

The outstanding amount past 90 DPD in the unsecured This pattern implies
category rises steeply alongside the increase in disbursed an increasing credit
risk associated with
amounts, suggesting higher default risk in this loan type. unsecured lending.
Secured loans, by
General Pattern: contrast, show relatively
The data demonstrates that unsecured loans are steady and lower levels
associated with a higher level of default risk, given their of both disbursed
higher outstanding amounts past 90 DPD. Secured loans and unpaid amounts,
show more stability with lower levels of unpaid amounts indicating lower default
past 90 DPD compared to unsecured loans, indicating risk.
potentially lower risk in secured loan categories.

STUDY ON MSME LOAN PERFORMANCE 33

 MSME LOAN PERFORMANCE

3.5.5 Effectiveness of guarantors on loan performance.

Figure 3 17: Yearly Past Due rates by GUARANTOR STATUS - 90+ dpd

Yearly Past Due Rates by GUARANTOR STATUS - 90+ DPD

Overview of the Data

The dataset provides information on loans that were guaranteed
between 2019 and 2023. It shows two main variables for each year
guaranteed loans and non-guaranteed loans. Guaranteed loans are
mainly loans issued to groups with group members providing cross-
guarantees as security for the loans. These loans tend to be for
micro enterprises.

Key Observations
1. Pandemic Impact (2020-2021):
o Delinquency rates for both guaranteed and non-
guaranteed loans saw significant reductions during the
pandemic, likely due to financial aid, loan relief programs,
and restructuring options. The almost non-existent 90-
day delinquency rate in 2020 reflects successful measures
taken to prevent defaults during this time.

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 MSME Loan Performance

2. Post-Pandemic Recovery (2022-2023):

• Rising Delinquency Rates: As relief measures tapered Key Insight:
off and borrowers faced full repayment obligations, The delinquency
delinquency rates for both types of loans increased patterns in the
data reflect the
sharply, particularly for guaranteed loans. The spike economic shocks of
in 90-day delinquency rates in 2023 for guaranteed the pandemic, the
loans suggests a period of acute financial distress. recovery efforts, and
• Non-Guaranteed Loans: These loans maintained subsequent financial
relatively lower delinquency rates, even during challenges faced by
borrowers. Guaranteed
periods of economic stress, possibly reflecting better
loans appear to be
borrower profiles or more stringent lending criteria. more sensitive to
financial instability, as
3. Guaranteed vs. Not Guaranteed Loans: shown by the spikes
o Guaranteed Loans showed more volatility in in delinquency rates in
delinquency rates, especially in 2022-2023, indicating recent years probably
from the type of
that borrowers of guaranteed loans were more borrower targeted for
susceptible to economic shifts or financial challenges. these loans, mainly
The higher rates suggest that these borrowers may micro enterprises.
be in sectors or situations that are more vulnerable Non-guaranteed loans
to changing conditions. generally maintained
lower delinquency
o Non-Guaranteed Loans, on the other hand, had
rates, suggesting
more stable delinquency rates throughout the stronger borrower
period, indicating stronger repayment capabilities resilience or more
or a more conservative lending approach by lenders cautious lending
when not backed by guarantees. practices. As economic
conditions evolve,
these patterns may
help predict future
risks for lenders in
both guaranteed and
non-guaranteed loan
portfolios.

STUDY ON MSME LOAN PERFORMANCE 35

 MSME LOAN PERFORMANCE

3.5.6 Credit Score Performance on MSME Loans

One of the metrics assessed is the predictiveness of credit scores on the performance of MSME
Loans. Credit bureaus generate scores for borrowers to give an indication of the likelihood of default.
Creditinfo’s Predictor Score, the CIP score, is generated for each borrower with ranges between 799
(highest) and 250 (lowest). The higher the score the lower the predicted likelihood of default.

Figure 3 18: Credit score performance on MSME Loans

The chart illustrates the relationship between CIP • Bad Rate Trends:
Scores (credit score ranges) and two key metrics: o The default rate for loans in each credit
1. The proportion of loan agreements relative score range reveals that:
to the total in each credit score range. ° The bad rate is lowest for the highest
2. The proportion of bad loans relative to the score range (750-799) at 0.85% and
contracts in each credit score range. highest for the 250-299 range at
7.74%.
Key Observations: ° The generally increasing trend as
• CIP Score Range: The x-axis shows different credit scores decrease means that
ranges of credit scores from the best 750-799 lower credit scores are associated
to the lowest 250-299. with higher default rates.
• Relative Contract Proportion: The blue bars ° The default rate based on individual
represent the percentage of loans issued to borrowers increases as credit scores
borrowers in each credit score range. decrease, peaking at 7.74% for the
o The largest proportion of loans are 250-299 range.
granted to borrowers with a score
between 650-699, followed by those in
the 550-599 range.
o The smallest proportion of loans are
issued to borrowers with scores of 450-
499 and 750-799.

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 MSME Loan Performance

Trends and Patterns: Concentration of Disparity in Risk:

Inverse Relationship Contracts in Middle While there are fewer
Between Credit Score and Ranges: loans issued in the 250-
Default Rate: The largest proportion 299 range, the risk (as
Higher credit score ranges of loans are granted to shown by bad rates) is
(e.g., 750-799) have the borrowers in the middle extremely high, indicating
lowest bad rates, while credit score ranges that lenders likely limit
lower credit scores (e.g., (650-699 and 550-599), exposure to these riskier
250-299) are associated with suggesting lenders focus borrowers.
much higher default rates. on borrowers in these
This confirms that riskier mid-range categories.
borrowers tend to default
more often.

550-599 & 650-699

Fair

250-299
Low 750-799
High

Key Insight:
The analysis demonstrates that the higher the credit score, the lower the probability
of default, with mid-range credit scores attracting the most loan contracts but with
varying levels of risk as indicated by the bad rate trends.

This demonstrated predictiveness of the credit score makes a case for the use of
scores as alternative means of qualifying MSMEs for credit and reducing the need to
rely on collateral.

STUDY ON MSME LOAN PERFORMANCE 37

 MSME LOAN PERFORMANCE

3.6 DEMOGRAPHIC ANALYSIS

In this section we analyze the loans to MSME based on the gender of the primary proprietor either
male or female.
3.6.1 Disbursements By Gender Of Proprietor
Figure 3 19: Disbursement by Gender Figure 3 20: Disbursement by Gender
by Volumes by Loan Amount
Disbursement By Gender by Disbursement By Gender by Loan
Volumes Amount

From the data it is observed that male-led MSMEs dominate in both the number and value of
loans disbursed to MSMEs at 64% of both value and volume disbursed with females at 36%
respectively.
3.6.2 Disbursement By Gender and Age Group of MSME Proprietor
Distribution by Gender vs Age Group

Contracts Loan Amount

The chart above analysis the distribution of loans to MSMEs based on the age of the proprietor for
both Male and Female gender.

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 MSME Loan Performance

Female Gender: By Male Gender: By volume the largest

volume the female proportion is to the age group 31-
demographic follows 40 years at 30% followed by the 18-
a slightly different 25 years at 20%, i.e., the younger
distribution with the demographic of under 40 years
largest proportion is accessing over 50% of loans by
by volume going to volume.
the 30-41 years olds
at 36% followed by By value the largest proportion is to
the 41–50-year-olds the 41–50-year-olds at 28% followed
at 21%, i.e., the older by the 51–60-year-olds at 22%, i.e., the
demographic is older demographic of over 40 years is
accessing over 60% of accessing over 50% by value of loans.
loans by volume for
females. This suggests that for males, the
value of loans given to the younger
By value the largest age groups is smaller than for the
proportion is to older age groups given the younger
the much older demographic has a higher volume.
demographic of 51-60 This may be an indication of the
years at more than half adoption of digital borrowing by the
of the loan values at younger demographic as compared
53%. with the older who may be going for
the more traditional non-digital loans.

36% 64%

Key Insight:
From the uneven distribution of loans by age groups between the genders, it can be
surmised that:
a. The males have a more even distribution within the age groups as the disparities
are not very large.
b. The males have better taken advantage of the move to digital channels of credit
access given the larger volume of younger demographic accessing credit.
c. The female demographic is still mainly the older generation who may have
more established enterprises and have a better track record to demonstrate to
lenders.
d. The smaller number of younger females accessing loans compared to males may
suggest that females are yet to take advantage of the digital loan products
available to access credit for their MSMEs.

STUDY ON MSME LOAN PERFORMANCE 39

 MSME LOAN PERFORMANCE

3.6.3 Number of MSMEs By Industry based on Gender of Proprietor

The data provides a breakdown of MSMEs by industry sector, categorized by gender (female and male)
of the MSME’s primary proprietors.
Figure 3 21: Subject Count by Industry sector and Gender
Subject Count by Industry sector and Gender

Subject Count
• Male borrowers dominate most sectors. For instance, in Agriculture, there
are 48,496 male borrowers compared to 21,692 female borrowers. This trend
is consistent across industries like Manufacturing, Trade, and Transport and
Communication.
• A few sectors, such as Other Services, show a more balanced or higher
female subject count (132,642 females vs. 173,140 males), suggesting greater
female participation in these industries.

Agriculture

48,496
Males borrowed in
Agricultural sector 21,692
Females borrowed in
Agricultural sector

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 MSME Loan Performance

3.6.4 Total Loans by Industry based on Gender of Proprietor

The chart below shows the total number of loans disbursed to each gender by industry of the MSME.
Figure 3 22: Contracts Count by Industry sector vs Gender
Contracts Count by Industry sector vs Gender

Contract Count (Loan Agreements)

• The contract counts follow a similar gender disparity pattern, with
male borrowers holding more contracts than females in most sectors.
• The Agriculture and Trade sectors, for example, have the highest
number of contracts for male borrowers.
• Other Services stands out for having a high number of contracts for Key Insight:
both genders, indicating high activity across both male and female The data
borrowers. highlights both
opportunities
Patterns and Trends: and challenges in
• Gender Disparity: Male borrowers consistently outnumber females addressing gender
across most sectors, indicating a gender gap in loan accessibility or disparities in the
demand. financial sector
• Loan Size Correlation: Male borrowers tend to secure significantly with the glaring
higher loan amounts, particularly in high-capital sectors like and continued
Manufacturing and Real Estate. dominance of
Insights: male gender in
• The gender gap may be due to socio-economic factors that limit the amount of
women’s access to larger loans. credit disbursed in
• Industries like Other Services and Agriculture could offer more every sector.
inclusive opportunities for female borrowers, although loan amounts
remain skewed towards males.
STUDY ON MSME LOAN PERFORMANCE 41
 MSME LOAN PERFORMANCE

3.6.5 Past-Due Rates by Sector and by Gender of the MSME Proprietor

Figure 3 23: Past-Due Rates by Sector and by Gender of the MSME Proprietor

Past-Due Rates by Sector and by Gender of the MSME Proprietor

The data provides insight into 60-day and 90-day past-due rates
(DPD) across various industry sectors from 2019 to 2023, segmented
by gender of the business owner (Female and Male).

Overall Past-Due Rates by Gender:

• Male borrowers generally have slightly higher past-due rates
compared to females in the 60 DPD rates. The proportions are
similar in the 90 DPD rates.
• Across most sectors, male borrowers tend to have slightly
higher past-due rates compared to female borrowers.

Key Insight:
In summary, while there
are some similarities
between gender groups,
Male borrowers generally the most striking pattern
have slightly higher is the slightly higher
past-due rates default risk associated
with male gender,
indicating potential for
the female gender to
borrow more without
necessarily increasing
defaults.

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 MSME Loan Performance

3.6.6 Collateral Use by Gender of Proprietor

The chart below represents an analysis of loans to MSMEs by gender and use of collateral.

Figure 3 24: Collateral Use by Gender of Proprietor

Collateral Use by Gender

The analysis of the use of various types of collateral by gender

gives us the following inferences:

Financial Access: Males may have greater

access to financial resources and credit,
allowing them to take more loans and use a
wider variety of collateral.
Key Insight:
From the lower use
Risk Aversion: Females might be more risk- of collateral by the
averse and prefer using safer collateral like female gender, it may
insurance policies. be surmised that they
have lower access to
varied collateral types
and hence lack the
ability to apply these
Asset Ownership: Males may own more for accessing credit for
assets like land, motor vehicles, and chattels, their MSMEs.
which can be used as collateral.

STUDY ON MSME LOAN PERFORMANCE 43

 MSME LOAN PERFORMANCE

3.7 GEOGRAPHICAL ANALYSIS

This section analyzes loans to MSME based on MSME location in the country. The data available
is mainly for non-digital loans (traditional loans) where the physical location details like town of the
borrower are captured at time of disbursement of the loan to the MSME. On the other hand, digital
loans may not have a designation by location as the mobile number is the primary indicator and,
therefore, where this is not indicated these are excluded in the analysis.

3.7.1 Top Ten Towns By Amounts Disbursed to MSMEs

TOP 10 Towns disbursement by Proportions

An analysis of the MSME loans by the geographical location

of the borrower shows that most loans are given to MSMEs
in the larger urban centers. Nairobi County has the bulk
of MSME loans being the largest economic center. Other Key Insight:
areas are Mombasa, Kiambu, and Nakuru that are also large There is a lending bias
economic centers. towards MSMEs located
in the urban and peri-
urban economic centers
Nairobi County has of the country. MSMEs
the bulk of MSME loans
being the largest economic in more rural areas are
center. disadvantaged as they
have limited access to
credit from the formal
lenders as evidenced by
the distribution of loans
geographically.

44 CIS KENYA | Towards a more open credit market

4
DISSEMINATION WORKSHOP

4.1 WORKSHOP DESIGN AND PARTICIPANTS

The workshop was attended by 51 participants from various related
organizations, National Treasury, KBA, KNCCI, KAM, Strathmore
University, MFI, Digital Lenders, CRBs, Banks and other Credit Providers.

• A complimenting presentation by
the National Treasury representative
on the CGS

• A summary of the CRB data

analysis was presented to the
participants • Break-out groups discussed specific
topics on enhancing MSME access to
credit.

STUDY ON MSME LOAN PERFORMANCE 45

 DISSEMINATION WORKSHOP

4.2 WORKSHOP DISCUSSION OUTCOMES

The workshop group discussions proposed the following interventions
that would further enable MSME access to credit and address gender
imbalances in loan extensions:

2. Credit Guarantee Scheme:

Participants noted that the CGS had
enabled access to credit for MSMEs
that had previously not been able to
1. Technology, Alternative access from the participating financial
Data and Artificial institutions. As currently constituted, the
Intelligence: CGS remains limited in its ability to impact
Participants noted that a wider market. Workshop participants
growth of digital lending recommended full implementation of the
has widened the reach of CGS across all financial institutions and
credit to more borrowers increased awareness programs.
using mobile payment
platforms and observed
that application of AI and
alternative data sources
could further widen the reach
of credit to MSMEs that are 3. Movable Property Security Rights
currently outside the reach Registry (MPSR):
of mainstream financial The collateral registry offers lenders
institutions. an option to use alternative collateral
as security for loans to MSMEs and
has the potential to enhance access to
credit for women-led MSMEs based on
their movable assets. Considering the
low uptake of this service, participants
proposed increased use of technology
to provide MSMEs the opportunity to
register their movable assets and make
valuation process more efficient. The need
to create broader awareness about the
collateral registry amongst lenders and
MSMEs was emphasized.

46 CIS KENYA | Towards a more open credit market

 Dissemination Workshop

5. Gender Inclusive Lending

Participants noted the gender imbalance in
MSME loan access and recommended:
• Supporting women-led businesses to
enhance level of formality
4. Training and Capacity • Use of blended scores that further
Building: consider women’s lower credit risk
Participants noted the • Tailored financial products for women-
large gap in awareness led MSMEs with more favorable loan
of existing solutions and terms.
products amongst MSMEs. • Recognition of women’s participation in
They also noted that high social saving groups (chamas) as a basis
level of MSMEs’ informality for additional data points on payments
in their operations was a and savings in credit scoring
significant hindrance to • Lowering collateral requirements.
their access to credit.
There is need for targeted
training to equip the
MSME owners with
financial literacy, product
knowledge, application 6. Sustainable Financing:
of the CGS and collateral Participants discussed the emerging focus
registry, MSME scores and on sustainable finance and how MSMEs can
ratings, the role of CRBs, benefit and recommended:
and improving business o sensitization and capacity building to
and corporate governance guide MSMEs understand how to tap
structures. into green financing.
o Development of products and solutions
that focus on social diversity and
inclusion, climate mitigation and risk
management, including green products,
energy efficiency, green buildings, and
climate-smart agriculture.
o Increased efforts by lenders to
recognize, reward and support green
solutions through collaborations with
CRBs.

STUDY ON MSME LOAN PERFORMANCE 47

 5
RECOMMENDATIONS

5.1 RECOMMENDATIONS FROM THE DATA ANALYSIS

INSIGHTS

5.1.1 Use of Credit Scores to 5.1.2 Removing Gender

Predict Default Risk Biases in Lending
An analysis of the performance of The analysis demonstrates
loans based on their CRB Score that male led MSMEs
demonstrated that the score is quite dominate by almost double
predictive on the likelihood of default the number of loans and
of an MSME loan. MSMEs that had a amount disbursed to female-
higher score at the bureau performed led MSMEs, despite evidence
better than the MSMEs that had a of a better repayment
lower score. The bureau score can behavior by female-led
be used as an alternative collateral MSMEs. There is opportunity
for MSMEs and can facilitate further to extend more credit to
access to credit at lower costs for female-led MSMEs without an
MSMEs. increasing the level of non-
performing loans.

48 CIS KENYA | Towards a more open credit market

 Dissemination Workshop

5.1.3 Reliance on Immovable 5.1.4 Digital / Technology Use

Assets in Lending to MSMEs in Lending to MSMEs
The study shows continued over-reliance The analysis of loans by type shows
on immovable assets to secure credit to significant dominance of digital
MSMEs. Although the types of collateral loans by volume. Due to their
in use are broad (financial instruments, ease of access via bank digital
vehicles and land and buildings), there is platforms, digital loans can be used
over-reliance on the latter even when the to drive access to MSME credit.
impact on loan performance is not material. Considering that digital loans are
To support expansion of credit to MSMEs, linked to borrowers’ mobile money
lending institutions should broaden the accounts, lenders should strive to
acceptable security types to include movable use mobile money transactions as
assets. an alternative source of data for
assessing MSME creditworthiness.

STUDY ON MSME LOAN PERFORMANCE 49

 RECOMMENDATIONS

5.2 RECOMMENDATIONS ON
THE BROADER CREDIT
MARKETS
5.2.1 Expansion of the Credit
Information Sharing mechanism
The CIS mechanism should be expanded
to include various sources of MSME credit
such as government-driven initiatives (Youth,
Women’s and Hustlers Funds) in order
to better assess MSME credit standing.
Inclusion of unregulated micro credit
institutions and non-deposit taking savings
and credit cooperatives would further enrich
the CIS mechanism.

5.2.2 Data Specification Template

The data analysis has shown that there are
gaps in the submission to the CRB of MSME-
related data points. In the on-going review
of the DST, CIS Kenya should ensure that
the DST data fields are expanded to include
more sectors and geographical location
of the borrower would allow for better
aggregation of MSME related loan data.

5.2.3 Linking of Collateral Registry

and Credit Guarantee Schemes
One of the primary challenges to credit
access by MSMEs is the requirement by most
lending institutions for security to back any
credit extension, hence the establishment
by Government of the MPSR and the CGS.
There is need for a deliberate policy action
to scale up access of these two schemes to
support the MSMEs in accessing credit from
formal lending institutions. In addition the
Government should explore the possibility
of linking the two schemes for information
sharing.

50 CIS KENYA | Towards a more open credit market

 Dissemination Workshop

5.2.6 Influence Government

CIS Policy changes that
impact lending to
women-led MSMEs
The Government of Kenya does
not have a National Policy on the
CIS Mechanism. There is need to
formulate a National CIS Policy to
achieve the following:
• Define the importance of CIS
5.2.4 Training and Capacity Building in the credit market and the
for MSMEs and Lenders economy as a whole due to its
One of the primary challenges to credit crucial role in financial sector
access form MSMEs is their lack of stability and access to credit
capacity and informality. With a reported for MSMEs
number of over 7.4 million MSMEs in • Promote expansion of the
the country with only 1.4 million formally range of credit providers in
registered, it is evident that there is a large the MSME space (including
gap in capacity building for enterprises to chamas) that submit data to
enable them to formalize their operations CRBs to increase visibility of
and have access to the credit markets. women-owned MSMEs that
borrow and repay their loans
Training in available credit solutions • Empowering CIS Kenya to play
and options like the Collateral Registry a greater role in supporting
and Credit Guarantee Schemes would credit providers in the
enhance use of these services to support MSME space to participate
credit to MSMEs. effectively in CIS, including its
ability to identify and resolve
technological challenges that
5.2.5 Enhancement of the CIS hinder unregulated credit
ValiData for improved MSME providers from participating in
Data Quality CIS
CIS Kenya has introduced a critical • Enabling CIS Kenya monitor
innovation that is bound to enhance data and support improvement of
quality of MSMEs that is submitted to the the quality of data submitted
CRBS. However, the Validata has been to CRBs so as to ensure
developed largely with consumer credit that information on MSMEs
data sources in mind. It is recommended available in CRBs is of the
that efforts be made to strengthening the highest standard
data quality monitoring function by: • Promoting the use of
- Further enhancements to the tool to Alternative Dispute
make it more effective in ensuring Resolution as an effective
quality data on MSMES tool for amicable and cost-
- Strengthening the data analytics effective resolution of
capacity of CIS Kenya CIS-related disputes and
- Introduce technological solutions ensuring credibility of the CIS
to enable less sophisticated lenders Mechanism.
connect to the CIS Validata to broaden
its usefulness in making available
MSME data to CRBs

STUDY ON MSME LOAN PERFORMANCE 51

 RECOMMENDATIONS

5.3 RECOMMENDATIONS ON ADDITIONAL / FOLLOW

UP STUDIES ON THE SUBJECT OF CREDIT ACCESS
FOR MSMES

As a follow up to this study and based on its insights, the following

areas are recommended for potential study to further enhance
understanding of the MSME credit market and find solutions to
unlock credit to this vital sector of the economy.

1. Include a survey of MSMEs in follow up

studies to understand their challenges and
suggestions on improving access to credit.

2. Include a survey of Lenders in follow up

studies to understand their challenges,
suggestions and initiatives towards
improving of credit access to MSMEs and
addressing gender inclusivity.

3. Scope alternative data sources that could

supplement existing credit data within the
CIS mechanism to support MSME lending.

52 CIS KENYA | Towards a more open credit market

ENDNOTES

1
Kenyan Banking Sector Analysis: Current Trends, Challenges, and Future
Prospects - creditnow.ke
2
The Focus on SMEs is a welcome Intervention (kam.co.ke)
3
Companies Registry Statistics - Business Registration Service (brs.go.ke)
4
Credit Guarantee Scheme (treasury.go.ke)
5
MPSR - Business Registration Service (brs.go.ke)
6
Youth Enterprise Development Fund (youthfund.go.ke)
7
Welcome - Women Enterprise Fund Kenya (wef.go.ke)
8
The Financial Inclusion Fund – JIINUE . JIENDELEZE (hustlerfund.go.ke)
9
Focus-Note-Digital-Credit-in-Kenya_Updated.pdf (fsdkenya.org)
10
Interpretation of this category (Government) is subject to interpretation
or clarification in the on-going review in the DST.

STUDY ON MSME LOAN PERFORMANCE 53

 Credit Information Sharing Association of Kenya (CIS KENYA)
Located at the Kenya School of Monetary Studies Mathare North Road, off Thika Highway
P.O. Box 65041– 00618 Ruaraka Nairobi, Kenya
t. 254 20 2600118 t. 254 774 832 059 e: [email protected]

CIS KENYA | Towards a more open credit market