Financial Sector Deepening Kenya (FSD Kenya) is an independent trust dedicated to the achievement of a financial system that delivers value for a green and inclusive digital economy while improving financial health and capability for women and micro and small enterprises (MSEs).

FSD Kenya works closely with the public sector, the financial services industry, and other partners to develop financial solutions that better address the real-world challenges that low-income households, micro and small enterprises, and underserved groups such as women and youth face.

Current FSD Kenya funders are UK International Development, the Swedish International Development Cooperation Agency (Sida), The International Fund for Agricultural Development (IFAD), and the Gates Foundation.

FSD Kenya is part of the FSD Network, a group of Financial Sector deepening programmes  seeking to build diverse and inclusive financial systems across Africa, enable inclusive growth and enhance the financial resilience and sustainable livelihoods for all.

FSD Kenya’s 2022 – 2025 strategy

FSD Kenya’s 2022 – 2025 strategy sets out to contribute to the development of financial markets offering useful, affordable, and trusted financial solutions for low-income households, women and Micro and Small Enterprises (MSEs).

Building on learnings from both FSD Kenya and the broader family of the FSD Network across the continent, FSD Kenya’s work has a “real economy” focus for delivering value-adding finance.

To demonstrate how finance can work for the real economy, FSD Kenya has prioritised several sectors based on a gap analysis for women and MSEs and the potential to demonstrate the power of inclusive finance. These sectors are:

• Agriculture and processing finance
• Health finance
• Affordable housing finance
• Green finance

As FSD Kenya engages at the intersection of the real economy and the financial sector, the focus will be on shifting key functions of the financial market towards more inclusive finance. These functions of the financial market are:

Effective policy, regulation, and vision: The enabling environment has shifted towards the idea of more inclusive, digital, and greener finance, but FSD Kenya’s 2022-2025 strategy intends to walk closely with policymakers and regulators to turn those ideas into reality through the implementation of government initiatives such as the Digital Finance Policy, the National Payments Strategy and Medium-term plans leading to Vision 2030.

Open financial market infrastructure: Although Kenya has made progress in terms of the reach and effectiveness of financial market information such as digital payments, and credit information sharing, FSD Kenya will seek to facilitate greater openness, interoperability, portability, risk mitigation, and improving financial service delivery, especially at the last mile.

Value-adding financial solutions: Given the progress in the enabling environment, financial market infrastructure and financial access, Kenya has a high possibility frontier for demonstrating how to design and deliver useful, affordable, and trusted financial solutions that help users seize economic opportunities and manage risks and shocks. Kenya already has many glimmers of promise and FSD Kenya will partner with the market to better understand when finance delivers value versus when it extracts value and then will work with the market to stimulate the scaling of value-adding solutions.

FSD Kenya’s strategic drivers

FSD Kenya’s work in the 2022 – 2025 strategy will be guided by four strategic drivers intended to lead to greater impact from more inclusive finance:

• Positioning gender and women’s economic empowerment at the centre of FSD Kenya’s strategy
• Meeting the financial needs of MSEs for growth and resilience
• Leveraging the opportunities and mitigating the challenges of a more digital economy
• Factoring in climate risks and green opportunities

Why finance matters

Finance is an integral part of economic life and modern financial systems have enabled solutions to a range of social and economic problems, supporting welfare, growth, and development in the process.

The Government of Kenya acknowledges the role of financial services, which are a key sector in the economic pillar of Vision 2030. National objectives under Vision 2030 aim to create a vibrant and competitive financial sector driving high levels of savings and financing the country’s investment needs.

The United Nations Sustainable Development Goals recognise that access to affordable, effective, and safe financial services (savings, insurance, payments, credit, and more) can play a transformative role by fostering equitable growth and furthering vital development goals such as poverty reduction, job creation, gender equality, and food security.

In understanding the role of finance, it is helpful to consider three nested layers of the economy: micro, meso and macro in the figure below.

The micro layer encompasses the individual firms and households that make up the ‘atomic’ units of the economy. The meso level encompasses the associations of these atomic units into more complex forms of organisation, such as firms linked together loosely in markets or sectors of production, or more tightly in value-chains; and the voluntary associations that individuals and households form such as community savings, investment, or welfare groups. Lastly, the macro layer represents economy-wide reservoirs and flows of spending power and capital residing collectively in households, government and firms and used for different ends: private consumption, government spending, investment, and international trade.

The financial system operates through each of these layers, with its effects spilling across their boundaries. At the broadest layer, finance influences how large pools of money move through the economy, and at the most granular layer, finance influences how firms and households manage money and risk and raise funds for large purchases or investments.

Why FSD Kenya’s work matters

The financial market in Kenya has developed considerably over the years leading to gains in financial inclusion. Eight out of ten Kenyans (83.7%) have access to formal financial services and products, up from three out of ten Kenyans (26.7%) in 2006.

Despite this development and growth, many Kenyans and Kenyan enterprises are being left behind. Financial health has fallen since 2016 across all demographics, with seven out of ten (74%) Kenyans reporting that their financial lives had worsened in the previous one year.

Kenyans and Kenyan enterprises are being left behind by the finance market because of various constraints besetting the finance market system. The work FSD Kenya will execute in the 2022 – 2026 strategy will contribute towards overcoming these finance market system challenges.