The Scale of the Challenge

Kenya is facing a significant youth unemployment crisis. According to a 2025 Afrobarometer survey, 43% of Kenyan youth aged 18-35 are unemployed and actively seeking work. The World Bank further reported the youth unemployment rate for ages 15-24 at 11.93% in 2024. This demographic, comprising approximately 75% of the total population under the age of 35, according to the Kenya National Bureau of Statistics (KNBS) 2019 census, represents a massive, underutilized economic resource. The urgency of the situation is underscored by the fact that around 800,000 young Kenyans enter the job market annually, while the economy struggles to create a sufficient number of formal jobs.

MSMEs as the Primary Job Creator

In the face of limited formal sector employment, the MSME sector has become the backbone of the Kenyan economy and its largest employer. There are over 7.4 million MSMEs in Kenya, which collectively employ approximately 14.9 million people. This vibrant sector contributes around 40% to the country's Gross Domestic Product (GDP) and accounts for over 90% of private businesses. The vast majority of these enterprises, however, operate in the informal sector, which constitutes about 83.6% of total jobs in Kenya as of 2024. For many young people, the informal sector and the MSMEs within it offer the only viable path to earning a livelihood.

Government Initiatives and Support

The Kenyan government has acknowledged the critical role of MSMEs in job creation and has launched several initiatives to support their growth. The Bottom-Up Economic Transformation Agenda (BETA) identifies the MSME sector as a key pillar for achieving inclusive growth. In line with this, the government is advancing the MSME Policy 2025, which aims to address systemic barriers to business growth through strategies focusing on climate resilience, digital readiness, and formalization.

Financial support programs are also a central part of the government's strategy. The recently launched National Youth Opportunities Towards Advancement (NYOTA) program, a collaboration with the World Bank, aims to support 820,000 unemployed youth with grants, training, and business support. This initiative complements existing programs like the Hustler Fund, the Women Enterprise Fund, and the Youth Enterprise Development Fund, all designed to provide affordable credit to small-scale entrepreneurs.

Persistent Challenges Facing MSMEs

Despite these efforts, MSMEs continue to face formidable challenges that hinder their growth and ability to create more jobs. Access to affordable credit remains a primary obstacle. A February 2025 survey by the Central Bank of Kenya highlighted that many entrepreneurs lack the traditional collateral required by lenders, forcing them into more expensive, unregulated credit markets. According to a dialogue on 'Unlocking Finance for Young Women Entrepreneurs' in June 2025, only 26.3% of women-led MSMEs can access formal financial services.

Another significant hurdle is the skills gap. A 2025 report by Mastercard and BrighterMonday revealed that 62% of employers believe graduates lack the necessary market skills, particularly in ICT and digital literacy. This mismatch between the skills possessed by young job seekers and the demands of the modern workplace limits their employability and the productivity of MSMEs.

Furthermore, many MSMEs struggle with market access, inadequate infrastructure, and the high cost of doing business, which are exacerbated by global economic pressures and local taxes. A significant number of these businesses fail to survive beyond their fifth year, often stagnating at the micro-enterprise level.

The Path Forward

For Kenya to effectively tackle youth unemployment, a multi-faceted approach that strengthens the MSME ecosystem is essential. This includes creating a more favorable regulatory environment, expanding access to affordable finance, and bridging the skills gap through closer collaboration between educational institutions and industry. Public-private partnerships, such as the collaboration between Kabarak University and NCBA Bank to provide business development training, offer a promising model.

Empowering youth-led and women-led enterprises, which account for a significant portion of the MSME sector, through targeted interventions is also crucial. As the Principal Secretary for the State Department for MSMEs, Susan Mang'eni, emphasized during the rollout of the MSME Policy 2025, fostering an inclusive environment for women, youth, and persons with disabilities is at the heart of the government's strategy. Ultimately, unlocking the full potential of the MSME sector is not just an economic necessity but a critical step towards building a more equitable and prosperous future for Kenya's youth.