For years, Kenyans have been told that the informal sector is “high risk.” But what if the real risk lies in our refusal to abandon outdated financial models that were never designed for Kenya’s economic reality?
The 2025 Economic Survey tells a story few in the formal financial sector want to confront:
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83.4% of total employment is in the informal sector.
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Of the 782,300 new jobs created in 2024, a staggering 703,700 came from this space.
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The informal sector contributes 33.8% to the GDP.
This is not a fringe economy. It is the economy.
Yet despite its dominance, 17.4 million workers remain excluded from the very financial systems that claim to support growth. This exclusion is not incidental — it is systemic.
Kenya’s banking frameworks are largely inherited from Western models designed decades ago for a small, salaried population. They were never built for a cash-driven, informal economy made up of hustlers, gig workers, micro-traders, and innovators.
That disconnect is painfully evident. According to the 2025 Economic Survey, 65% of MSME loan applications to formal banks were rejected last year — not because the businesses lacked viability, but because they lacked traditional collateral or “acceptable” credit histories. The result is a structurally exclusionary system that punishes the segment creating most of Kenya’s jobs.
Some argue that fintech has already solved this problem. Mobile money usage is surging — Sh9.8 trillion worth of transactions were recorded in 2024 alone. Clearly, Kenyans have embraced digital finance.
But access to digital credit hasn’t always translated into financial stability. In fact, millions have been left worse off — caught in a cycle of predatory interest rates and harsh collection tactics that deepen vulnerability rather than deliver economic empowerment.
We’ve built new systems, yes — but have we built better, fairer, more inclusive ones?
The contradictions are laid bare in our daily newspapers. On Monday, August 4, The Star published a piece by Alfred Gachaga warning that scrapping risk-based pricing could hurt borrowers — especially small businesses that already struggle to fit outdated credit models.
Yet on the same day, National Bank of Kenya announced a new “risk-based” pricing formula: a 12.9% reference rate plus a risk premium. It sounds technical and progressive, but in reality, it’s a recycled model that continues to assess risk through a narrow, collateral-heavy, salaried-worker lens — the very approach that locks out the majority of Kenyans.
Banks claim risk-based pricing protects borrowers and expands access. But when risk is still defined by outdated metrics, the result is exclusion — repackaged in modern language.
This dual narrative — that risk-based pricing helps borrowers while simultaneously pricing them out — exposes a financial system more concerned with protecting itself than enabling inclusive growth.
Even as the informal sector powers job creation, the rules of the game continue to serve a narrow, elite, formally employed class.
What Are We Missing?
With Kenya’s gig economy projected to generate Sh44.5 billion this year, sidelining the informal sector is not just unjust — it’s economically reckless.
By clinging to financial frameworks that prioritise collateral, paperwork, and rigid scoring systems, we’re not only excluding people — we’re suppressing national potential.
So, What Needs to Change?
True inclusion will take more than glossy ads and slick fintech apps. It requires structural transformation, including:
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Re-engineering risk models to reflect real cash flows, transaction data, and entrepreneurial activity — not just payslips and assets.
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Empowering regulators like the Central Bank to champion responsible innovation while curbing exploitative lending.
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Building hybrid solutions that combine mobile money’s reach with fair, transparent, and affordable credit tools.
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Offering policy incentives to financial institutions that genuinely expand access for informal and gig workers.
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Changing the narrative — stop framing the informal economy as a problem. It is Kenya’s greatest economic asset.
And Let’s Ask the Hard Questions:
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Why do we cling to financial models that ignore 83.4% of our workforce and one-third of GDP?
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How can we justify a system where two-thirds of MSMEs are denied credit, not because they’re unviable — but because banks lack imagination?
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If mobile transactions have already hit Sh9.8 trillion, why hasn’t formal finance evolved to serve people where they are?
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With 67% youth unemployment, how much longer can we afford to lock out the sector that creates the most jobs?
The Bottom Line
The informal sector is not the risk.
The real risk is a financial system that refuses to evolve, adapt, or recognise who is truly driving Kenya’s economy. If we want genuine financial inclusion, it will take more than innovation theatre. It will require a bold, ethical, data-driven rethinking of how finance works — and who it should serve.
Anything less is a failure. One we can no longer afford.
Fellaris Wambui is a Presenter on Capital FM’s Breakfast Show, Capital In The Morning, and the station’s business segment, The Financial Forecast.
