The year always opens with balance sheets under review and tempered expectations. Across Kenya’s business landscape, the usual burst of new year expansion has made way to a more deliberate reassessment of risk, cash flow and capital.
Although banks and investment firms are well-positioned to lend and invest, however, many businesses, particularly small and medium-sized enterprises (SMEs), are choosing restraint over the leverage.
Financial industry players say that this cautious start is their fear of money shortage as firms weigh the uncertainty against the need to survive and grow in the months ahead.
According to Mr Dennis Gitahi, Business Development Manager at Jubilee Asset Management in Nairobi, for a long time investors were primarily focused on preserving capital with placing funds in conservative instruments and cautiously “doubling down on risk with the interest.” However, Mr Gitahi says the instinct has not disappeared, but it is now evolving.
“There are so many special funds coming up. Clients are looking for something that is aggressive, some are even willing to lose their capital as long as they’re going to have a higher payout at the end of the period," Mr Gitahi says.
This shift, he explains, is driven by their need for a better yield over comfort. “The focus has moved from preservation to higher returns, what is offering a higher return instead of the conservative and traditional asset classes that have been there before.”
But this growing appetite for risk is not uniform since among small and medium-sized enterprises (SMEs) caution still dominates.
Mr Gitahi observes that SMEs are quietly pulling away from borrowing altogether.
“When we narrow it down to SMEs, we are seeing them shying away from loans because of fear of the risks,” he says.
For these businesses, capital is a ball game of scarce that is difficult to replace. “They don’t want to risk much on the capital they have, or on the revenues they are getting from their businesses,” Mr Gitahi says. “If they lose the money they are not able to get it anywhere either from chamas or banks because of the high interest rates on loans.”
As a result, SMEs are prioritising capital preservation over expansion.
“They are looking at preserving most of their capital, not an aggressive investment. Conservative investment will guarantee the capital and also ensure decent returns,” he says.
This defensive posture is most visible in how SMEs manage their short-term liquidity. “Most are looking at call investments. They just want to put money somewhere instead of having it in the bank even if it’s going to be there for two weeks because it’s going to earn them a superior return," Mr Gitahi says.
Additionally, near-cash instruments, particularly money market funds (MMF) are popular.
“As much as they’re not giving higher returns, they just want it to have a small growth that will guarantee them an income and also ensure that their capital is preserved," Mr Gitahi says.
He adds that their reluctance to borrow extends into their growth strategies.
“Due to the uncertainty in the business environment, they are less likely to borrow. You’ll find them marketing on many social media platforms, using WhatsApp channels and even AI tools that respond in real time, rather than scaling through capital injections from loans either banks or chamas.”
Their investment choices?
“They are looking at conservative investments and avoiding anything aggressive. They don’t want to lose or risk any funds. They just want a conservative environment that is going to preserve their capital, but still ensuring that it gives above-average inflation rates,” he says.
Mr Gitahi says aggressive products such as special funds, which can deliver returns of up to 20 per cent are largely avoided by SMEs. By contrast, unit trust investments are the benchmark. “When the 91-day Treasury Bill is at seven per cent, the unit trust will give around nine to 10 per cent on average,” he says.
The business expert says that restoring confidence will require broader diversification, particularly across currencies.
“Diversification doesn’t mean on products only, but also on the currency,” he says, pointing to the election cycle and the Eurobond maturing in 2027.
“That’s when we expect to see much of the capital flight.”
He says the dollar-denominated investments become more attractive.
“You’ll expect to see rates going up for dollar-denominated investments, but for Kenya shilling securities, in the long run, you’ll see them dropping as advised by the drop in the 91-day Treasury bill and bonds,” he says.
At the same time, Mr Gitahi says the Eurobond maturity could force the government back into borrowing, potentially pushing yields higher again.
Still, Mr Gitahi cautions against allowing caution to become paralysis. “If you’re cautious, you won’t even take a step forward. You’ll always be looking on the side for imaginary risks,” he says.
“Being cautious only makes you lose even more. Indecision is worse than even a bad decision. Rather make a bad decision and learn than being indecisive,” he added.
For SMEs at the start of the year, he says timing will be critical. Drawing from last year’s employment data, Mr Gitahi notes that the increased hiring pointed to stronger demand for goods and services, a trend he expects to carry into the year ahead.
“It’s better for them to start early. You don’t want to be found in a rush later when demand has picked up and you’re knocking on bank doors.”
Old money, new risks
Consequently, at the other end of the wealth spectrum, Timothy Macharia, Head of Wealth Management at KCB Investment Bank, explains how generational dynamics shape risk appetite.
“The older generation who hold the majority of the wealth are still conservative. They are keen on wealth protection. They deploy money into conservative assets since they are not ready to take highly elevated risks. But that is a scenario that is changing.” Mr Macharia says.
Mr Macharia adds that the majority of Kenya’s wealth especially around 70 per cent is concentrated with older investors. “If you check where that wealth is packed, the majority is in conservative assets like real estate and bank deposits. Even in collective investment schemes, money market funds (MMF) have a greater allocation,” he says.
This generational difference also explains behavioral patterns. “People who have money are conservative unlike those who feel disadvantaged are more risk-seeking. The young generation who are feeling locked out of wealth accumulation, are looking for quick ways to catch up with things like higher-risk investments, trading, even gambling. Meanwhile, the older generation prioritises protection,” Mr Macharia says.
He adds that the shift to growth-oriented investment will take time. “The sentiment is positive. We have supportive regulators like Capital Markets Authority (CMA),Nairobi Securities Exchange and investment banks are introducing ETFs, commodities, corporate bonds.
Technology, including AI, will help investors access opportunities seamlessly. But wealth reallocation from traditional to alternative assets does not happen overnight. The progress is steady, but visible.”
Regarding borrowing, Mr Macharia notes, “Credit growth depends on macro conditions. Last year interest rates were high, which discouraged borrowing. But in recent months, the cost of debt has come down. Once credit is affordable, businesses will be more inclined to borrow and expand. Technology and infrastructure will make accessing these opportunities easier, but continuous investor education is essential.”
