The government’s plan to expand the Hustler Fund to KSh100 billion and unlock KSh50 billion in commercial bank lending through the Credit Guarantee Scheme (CGS) has brought renewed focus on the sustainability of state-backed MSME financing and the potential fiscal risks tied to loan defaults.
- •According to the Draft 2026 Budget Policy Statement, the two programs now sit at the centre of Treasury’s strategy to ease credit constraints in the micro, small and medium enterprises (MSMEs) sector, which employs nearly 15 million Kenyans but remains largely excluded from formal finance due to high interest rates and stringent collateral requirements.
- •Despite this expansion, the Budget Policy Statement offers limited detail on guarantee call rates, loss-sharing arrangements, or the fiscal impact of potential defaults, leaving open questions about how losses would be absorbed if repayment deteriorates.
- •The government says the credit programmes will be supported by regulatory reforms, including a review of the Micro and Small Enterprises Act, and by non-financial interventions such as MSME development hubs in all 47 counties, aimed at improving enterprise viability and loan repayment capacity.
The expanded Hustler Fund targets 30 million borrowers, most of them informal traders and first-time credit users. At KSh100 billion, the programme represents the largest state-supported MSME credit initiative undertaken in Kenya, significantly increasing public exposure to repayment risk in a sector characterised by volatile incomes and high informality.
While Treasury positions the fund as a financial inclusion tool, the policy document does not provide a detailed breakdown of repayment performance, default rates or recovery timelines, raising questions about portfolio quality as the programme scales up.
The Credit Guarantee Scheme, which seeks to crowd in private sector lending by absorbing part of the default risk for commercial banks, is also set for expansion. As of December 2024, KSh 6.43 billion had been advanced to 4,198 MSMEsacross 46 counties and 12 economic sectors, supporting 26,714 jobs.
Treasury plans to use the scheme to unlock KSh50 billion in additional bank lending to more than 200,000 enterprises, a move that shifts part of the credit risk from lenders to the public balance sheet.
