Sacco-led youth credit expands as informal finance fills lending gap

Kenya's youth credit market is shifting toward Sacco-led lending models as traditional banking continues to exclude young borrowers with limited collateral and informal income streams.

The gap has pushed young borrowers toward savings groups and Sacco-based lending, where collateral requirements are lower, and interest rates are a fraction of what microfinance institutions (MFIs) charge, with some exceeding 30 per cent annually.

Across several counties, such programmes are now disbursing loans and grants directly to youth enterprises and small businesses.

In Machakos, 339 young people have accessed affordable loans, alongside grants, to three community-based organisations that target small enterprises and youth-led projects.

Curtain-maker Ciliaka Nyokabi, one of the borrowers, said access to lower-cost credit eased pressure on her business expansion.

The loans are disbursed through Shining Hope for Communities (SHOFCO), a community development organisation operating the Sacco-based model in the county.

"SHOFCO has given me hope. I run a curtain-making business, and this support will enable me to buy materials and increase production without worrying about heavy repayment burdens," said Nyokabi.

She noted that previous borrowing came at rates of up to 35 per cent, limiting reinvestment and growth.

The Young Africa Action Community-Based Organisation (CBO), one of the grant recipients, plans to channel its funding into agricultural training for youth.

"We intend to establish an organic agriculture project within the community centre so that young people can learn practical farming skills and generate income," said chairperson Levi Mutie.

"This project will help youth embrace sustainable farming while also creating opportunities for entrepreneurship and food security," Mutie added.

Machakos Governor Wavinya Ndeti said the initiative helps bridge gaps in access to financial services for young people outside formal employment.

"We are deeply grateful for empowering our communities, especially our young people who are full of talent and potential but often lack opportunities," Ndeti observed.

The Machakos rollout follows a similar programme in Homa Bay, where more than 391 young people accessed loans under the same model, with repayments circulating within local lending groups rather than flowing back to external lenders.

SHOFCO said the system combines credit access with skills development to improve enterprise survival and repayment outcomes.

"This centre is not just a building; it is a platform for transformation. A library means our young people can access knowledge, a community hall gives residents a place to organise and share ideas, and women empowerment projects will uplift families economically," explained Chief Executive Officer Kennedy Odede.