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How Kenya can seal gaps in funding as aid taps dry up
A growing number of promising businesses are in survival mode. Fundraising timelines have stretched, investor caution has intensified, and Kenya’s private capital ecosystem is holding its breath.
For years, grants and aid kept Kenya’s startups afloat—fueling innovation, plugging capital gaps, and reducing investor risk. But that lifeline is fading fast, and the shift to private capital is proving bumpier than anyone expected.
Many local investors previously partnered with USAid and other donor programmes to co-finance startups and SMEs.
At Acumen specifically, we’ve seen firsthand how this funding freeze is rippling through the system: entrepreneurs returning for emergency follow-on capital, liquidity drying up, and banks—already risk-averse—turning away applications from entrepreneurs who lack traditional collateral.
The result? A growing number of promising businesses are in survival mode. Fundraising timelines have stretched, investor caution has intensified, and Kenya’s private capital ecosystem is holding its breath.
Conversations about adaptation are happening—but the action hasn’t caught up.
Vulnerable sectors, resilient innovators
Not all sectors are affected equally. Healthcare—long a donor-dependent industry—has been hit the hardest. Even the Gates Foundation’s increased focus on health in Africa can’t fill the gap left by the decline of USAid.
Meanwhile, fintech startups and gig economy platforms have shown greater resilience. These sectors are leveraging digital infrastructure, tapping into local capital, and iterating faster to survive. But they remain the exception.
Small and medium enterprises (SMEs), which form the backbone of Kenya’s economy, are facing the brunt of this transition. Unlike larger firms, they don’t have capital reserves or diversified revenue streams. Many have had to scale back operations and narrow their focus to local and regional markets in a bid to stay afloat.
Tariffs and trade uncertainty
External policy pressures are making the situation worse. Uncertainty around trade agreements—such as the possible expiration of Agoa—is creating deep anxiety in the textile sector.
Tariffs on exports are eroding competitiveness, and most Kenyan producers can’t pass on those costs to customers, especially in globally competitive industries such as tea, coffee, and horticulture.
If Kenya is serious about closing its trade deficit and strengthening its export economy, trade terms must be a top priority. Otherwise, the transition from aid to trade will remain out of reach.
Capital markets must step up
Kenya’s capital markets, especially the Nairobi Securities Exchange and the Capital Markets Authority, have a critical role to play. But today, regulatory and stringent requirements still prevent most SMEs from listing or raising funds on the exchange.
The NSE and CMA should double down on SME-friendly listing frameworks and support international investor roadshows to reenergise interest. Foreign investors still dominate trading volumes—and must be engaged with a long-term vision in mind.
Non-profit venture funds can also help bridge the gap by backing entrepreneurs that commercial investors often overlook. But even we can’t solve for scale without deeper structural reform.
Blended finance: Still too exclusive
Blended finance has been heralded as the answer to unlocking more private capital—but in Kenya, it’s still too exclusive. It’s largely accessible only to large investors, and it often lacks the one ingredient that matters most: patience.
If we want blended finance to truly move the needle, it must be democratised and redesigned. SME-focused funds should have tiered structures—first-loss layers, grants and technical assistance, concessionary early-stage capital, and more commercial growth capital. And the timelines need to reflect local realities: 10-year investment horizons, not five.
There is precedent. The Kenya Off-Grid Solar Access Project (KOSAP), backed by the World Bank and multiple donors, successfully used blended finance to de-risk private solar investment in rural areas. We need more of that—and we need it urgently.
Kenya’s path to prosperity
To Kenya’s policymakers: revisit and revise policies that affect ease of doing business, capital formation, and export competitiveness. The moment demands more than regulation — it demands bold, enabling reform.
To institutional investors: it’s time to rethink your timelines. The future belongs to builders, not speculators. Kenya’s entrepreneurs need capital that’s patient, flexible, and committed to impact over the long haul.
The transition away from aid isn’t just a challenge. It’s an opportunity to build something more enduring—an investment ecosystem rooted in local resilience, not complete donor dependency.
But we can’t get there without urgency, innovation, and capital that’s aligned with the realities on the ground.
The writer is the regional director East Africa, Acumen
