Kenya unlocks new financing pathway for MSMEs and digital entrepreneurs

Kenya has taken a significant step in strengthening its digital economy with the launch of a new financing mechanism designed to unlock capital for local digital platforms and technology-enabled businesses. The agreement, signed between the United Nations Capital Development Fund (UNCDF) and the Co-operative Bank of Kenya, introduces a loan portfolio guarantee aimed at expanding access to finance for micro, small and medium enterprises operating within Kenya’s growing digital ecosystem.

The signing ceremony, held in Nairobi, brought together representatives from the Government of Kenya, the European Union, the United Nations system and private sector partners. It marks a shift in how development partners, financial institutions and government are working together to address one of the most persistent barriers facing digital entrepreneurs, access to finance.

Unlocking opportunity in Kenya’s digital economy

Kenya’s digital transformation continues to accelerate, driven by strong infrastructure investments, a vibrant innovation ecosystem and a growing base of young entrepreneurs. Yet despite this progress, many businesses remain unable to access affordable financing due to perceived risks within the sector.

Speaking at the event, United Nations Resident Coordinator Dr Stephen Jackson framed the initiative as a practical response to this challenge.

“This is about reducing risk in order to unlock opportunity. By sharing risk, we enable lending to businesses that would otherwise struggle to access capital, while maintaining strong financial discipline,” he said.

He added that the initiative is also designed to shift how the financial sector views digital enterprises.

“For many institutions, this sector is still seen as unfamiliar territory. What we are doing here is helping to reframe that perception. These are not high-risk ideas. They are viable businesses with real potential to grow, create jobs and contribute to Kenya’s economy.”

At the heart of the DigiKen programme is what partners describe as a “deal room” approach. This connects promising entrepreneurs with financial institutions, while strengthening their readiness to absorb investment.

Through this model, development partners support entrepreneurs to refine their business models, improve their financial readiness and position themselves for investment. Financial institutions are then able to engage with greater confidence, supported by risk-sharing instruments such as the UNCDF guarantee.

The newly signed facility will allow the Co-operative Bank of Kenya to extend financing to a broader range of digital enterprises, while maintaining its strong governance and credit standards.

“This partnership allows us to extend financing to more businesses while upholding the discipline that defines our institution,” said Vincent Marangu, Director of Co-operatives Banking at Co-operative Bank of Kenya.

“Our goal is to widen the circle of opportunity for enterprises that are ready to grow. These are businesses that are commercially viable but often overlooked because they do not fit traditional risk models.”

The mechanism also reflects a broader shift in development financing. Rather than relying solely on grants, the approach uses catalytic public resources to unlock much larger flows of private capital.

Dr Jackson emphasised that this transition is essential for long-term sustainability.

“Grant financing has an important role, particularly in the early stages of innovation. But if we are serious about scaling Kenya’s digital economy, we must move beyond grant dependency. The real opportunity lies in building a market where private capital can flow at scale.”

Through the guarantee facility, UNCDF is helping to reduce the perceived risks associated with lending to digital MSMEs. This enables financial institutions to expand their portfolios while building confidence in the sector over time.

The initiative is expected to unlock at least two million dollars in private sector financing in the immediate term, with the potential to catalyse significantly larger investment flows as the model matures.

Building a bankable pipeline

Beyond financing, DigiKen is also focused on strengthening the supply side of the ecosystem. The programme aims to support the development of a pipeline of at least 150 investment-ready digital enterprises.

This includes targeted support to entrepreneurs, particularly women and youth, to enhance their business models, improve financial management and build sustainable digital businesses. A dedicated training curriculum is being finalised to equip innovators with the skills required to operate in competitive and environmentally responsible markets.

This dual approach, unlocking finance while strengthening enterprise readiness, is designed to ensure that investment translates into real growth and job creation.

The initiative is closely aligned with Kenya’s national development agenda, including the Bottom-Up Economic Transformation Agenda and the Digital Masterplan.

Principal Secretary Eng. John Tanui of the Ministry of Information, Communications and the Digital Economy highlighted the progress already made in building the foundations of the digital economy, including the expansion of fibre connectivity and the growth of digital public services through platforms such as eCitizen.

“Our focus is on building solutions that are local, inclusive and relevant,” he noted. “Digital platforms provide a powerful opportunity, especially for young people, to participate in and benefit from the economy.”

Our focus is on building solutions that are local, inclusive and relevant. Digital platforms provide a powerful opportunity, especially for young people, to participate in and benefit from the economy.

The European Union also reaffirmed its support for the programme, noting its role in advancing digital transformation and private sector development.

“Many innovative companies face challenges not because of lack of demand, but because they cannot access the capital needed to grow,” said Deputy Ambassador Ondřej Šimek. “This initiative helps unlock that growth while contributing to job creation and economic expansion.”

A model for partnership-driven development

The DigiKen programme, supported by the Joint SDG Fund, brings together UNESCO, UNCDF, UN Women and UNEP under the leadership of the Resident Coordinator. It is supported by the Joint SDG Fund and reflects a growing emphasis on partnership-driven approaches to development.

By combining public resources, private sector expertise and coordinated UN support, the programme demonstrates how targeted interventions can unlock broader market systems and create sustainable impact.

Dr Jackson underscored this point in his closing reflection.

“What today represents is confidence. Confidence in Kenyan entrepreneurs, in the strength of this ecosystem and in the power of partnerships. When government, development partners, financial institutions and innovators work together, we can unlock opportunities at a scale that none of us could achieve alone.”

As Kenya continues to position itself as a leading digital hub in the region, initiatives such as DigiKen are expected to play a critical role in accelerating innovation, expanding access to finance and ensuring that the benefits of the digital economy reach those who need them most.