The State Department for Micro, Small and Medium Enterprises (MSME) Development under the Ministry of Cooperatives and Micro, Small and Medium Enterprises Development was established through the Executive Order No. 1 of 2023 following the re-organization of Government after the August 2022 general elections.

The mandate of the State Department is to support the growth and development of MSMEs towards the socioeconomic transformation of the economy. The MSMEs sector plays a vital role in the economy by creating jobs and wealth, generating revenue and driving innovation. However, MSMEs often face unique challenges, such as: Inadequate skills for MSMEs capacity; Limited access to finance; Limited access to markets; Access to affordable Infrastructures; Weak entrepreneurial culture; Business Regulatory Constraints; and Poor Coordination that can hinder their growth and development. The State Department is established to address these challenges and support the success of MSMEs.

The Kenya Kwanza Government Plan has laid emphasis on transformation of the Micro, Small and Medium Enterprises Sector by improving their operating environment to enable the sector play its role in economic turnaround and foster economic inclusivity, job and wealth creation.

The MSME economy contributes 85 per cent of non-farm jobs which today translates to 15 million out of 18 million workforce. Presently, it is absorbing nine out of 10 of the young people join¬ing the workforce, 750,000 on average, while the formal wage cor¬porate economy barely absorbs 50,000. KNBS data shows that when properly established, MSMEs contribute very significantly to the economy, generating an operating surplus a worker of over Sh50,000 a month, adding up to Sh600,000 a year. However, an estimated 10 million informal MSME operators and workers gener¬ate less than Sh5,000 income a month on average, which is below the living wage for one person. This is a reflection of the hostile environment that they operate in, criminalization of their enterpris¬es (e.g., hawkers), as well as disguised unemployment. These 10 million people, who represent half of Kenya’s workforce, are the country’s most underutilized resource. The Kenya Kwanza Plan estimates that if these workers were as productive as those in established SMEs, they would be generating Sh6 trillion a year, which is 60 per cent of GDP i.e., the economy would be 60 per cent larger.

Despite the critical role they play in the economy, MSMEs are frequently confronted with market imperfections. They face difficulties in accessing credit, are de-linked with the market and at the same time have challenges attracting skilled manpower. Most of the MSMEs find it difficult to integrate into large-scale business relationships due to lack of standards and quality controls. Majority of MSMEs operate informally, which greatly reduces their prospects of developing linkages with large enterprises.