Fintech Startups: Can the Fintech Boom Address the Msmes Finance Gap in Kenya

Abstract

MSMEs are considered the backbone of the Kenyan economy. However, they are considered too risk by financial institutions. With the emergence and growth of Fintech in the country Fintech is becoming more attractive to MSMEs as a source of credit, this is causing panic among the financial institutions. The purpose of this study was to analyze the effect of Fintech boom on mitigating of the Financial Gap among MSMEs in Kenya. The study was anchored on Constraint-Induced Financial Innovation Theory, Diffusion of Innovations Theory, and Traditional Theory of Financial Innovation. A desktop analysis of existing literature on Fintech studies was used and from the analysis it was established that existing financial institutions deny MSMEs financial support as they are considered too risky. However, with the Fintech boom in Kenya the landscape is changing hence significantly narrowing the financial gap for MSMEs. Moreover, the findings indicates that the percentage of underserved MSMEs has reduced as many continued to expand their operation using funding from Fintech. It’s also observed that the rise of Fintech start-ups has helped reduce the cost of credit in the local market.