The Treasury’s push to scale up state-backed lending to small businesses is putting the spotlight on whether flagship programmes such as the Hustler Fund and the Credit Guarantee Scheme can withstand the strain of higher borrowing and repayment risk.
Under the draft 2026 Budget Policy Statement, the government intends to grow the Hustler Fund to KSh100 billion and use the Credit Guarantee Scheme to catalyse up to KSh50 billion in additional lending from commercial banks. Together, the two initiatives form the backbone of Treasury’s effort to ease access to credit for micro, small and medium enterprises, a sector that employs close to 15 million Kenyans but is largely shut out of formal finance by high interest rates and tough collateral demands.
Even so, the policy paper offers little clarity on how losses would be handled if defaults rise. It is silent on guarantee call rates, loss-sharing formulas, and the potential fiscal exposure tied to weak repayment, leaving unanswered questions about who ultimately absorbs the cost if loans go bad.
The government says the expanded credit push will be complemented by regulatory reforms, including a review of the Micro and Small Enterprises Act, alongside non-financial support such as MSME development hubs across all 47 counties. These measures are intended to improve business sustainability and strengthen borrowers’ capacity to service loans.
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The Hustler Fund expansion alone targets up to 30 million borrowers, largely informal traders and first-time users of credit. At a planned size of KSh100 billion, it would become Kenya’s largest state-supported MSME financing programme, sharply increasing public exposure to a segment marked by irregular incomes and high informality. While Treasury frames the fund as a financial inclusion tool, it has yet to publish detailed data on repayment trends, default levels, or recovery timelines, raising concerns about portfolio quality as the programme grows.
The Credit Guarantee Scheme is also set to be scaled up. By December 2024, it had supported KSh6.43 billion in loans to 4,198 MSMEs across 46 counties and 12 sectors, helping sustain more than 26,700 jobs. Treasury now plans to use the scheme to unlock KSh50 billion in fresh bank lending to over 200,000 businesses, effectively shifting part of the credit risk from lenders to the public balance sheet as the state deepens its role in MSME financing.
