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FSD Africa to mobilise Sh10bn debt fund for Kenyan SMEs
A panel discussion during the launch of the FSD Africa venture fund on November 26, 2025 at the Sarit Centre Expo. The fund will accelerate insurance innovation in Africa to close the continents protection gap.
Photo credit: Francis Nderitu I Nation Media Group
UK-backed Financial Sector Deepening Africa (FSD Africa) is lining up a new debt fund to help mobilise between $64 million (Sh8.25 billion) and $77 million (Sh9.93 billion) for lending to small and medium enterprises in Kenya.
The firm says in a newly published Impact Report 2025 that it wants to narrow the financing gap for small businesses through a Kenya SME debt fund, which will be structured to mobilise capital from local institutional investors such as pension funds and insurers.
The Kenya-specific debt fund will build on FSD’s Africa Private Equity and Debt Programme, which was set up targeting to develop investment funds focused on SMEs in Ghana, Kenya and Rwanda.
FSD says it is going to put an initial first-loss tranche of about $6.8 million (about Sh876.99 million) in the Kenya SME debt fund to de-risk domestic institutional investors. The fund will target to support over 3,000 SMEs in Kenya.
“We’ll soon be launching the Kenya SME Debt Fund, a new financial architecture with the same aim [promoting financing for SMEs in local currency],” said FSD in the report published last week.
“We’ve deployed $6.8 million of capital to the fund, in a ‘first-loss’ position. By designing a mechanism to absorb initial risks, we’re helping to de-risk the asset class for local pension funds.”
The fund will create a risk-sharing mechanism to encourage pension and insurance funds —traditionally cautious about SME credit— to allocate a greater share of their portfolios to this segment.
SMEs are acknowledged as critical drivers of employment and economic resilience in Kenya but face challenges such as high borrowing costs and limited access to institutional funding.
FSD Africa’s report notes that conventional lenders often cite collateral constraints and perceived risk as barriers to lending to smaller enterprises, emphasising the need for innovative financing structures.
“This gap exists because MSMEs are often seen as too large for microfinance, yet too small or risky for traditional capital. Bank lending requires a high level of collateral and involves prohibitive interest rates, while equity investment demands a more certain revenue stream and a proven track record,” said FSD.
The Kenya SME Debt Fund will be complemented by other initiatives including FSDAi Nyala Facility, a $12 million (Sh1.55 billion) fund designed to finance alternative local capital providers that finance early-stage and growth-oriented businesses across several African markets.
The FSDAi Nyala Facility has provided capital to a portfolio of women-led investment managers in Senegal, Nigeria, Ghana, Kenya, South Africa and Uganda, according to FSD.
The facility has helped mobilise about $9.4 million (Sh1.2 billion).
FSD has been keen on initiatives supporting small businesses to access capital in Africa. Last year, FSD announced the setting up of a $30 million (Sh3.89 billion) fund aimed at supporting insurance startups to scale their operations and accelerate the uptake of insurance products across the continent.
The fund, called Inclusive Insurtech Investment Fund (3iF), is expected to support promising early- and growth-stage insurtechs to develop affordable insurance products to reach underserved households and small businesses.
