Every year in June, the United Nations marks Micro, Small and Medium Enterprises (MSMEs) Day. This year's theme, ‘The Future Generation of MSMEs,’ placed human-centred entrepreneurship at the centre of the global conversation on MSMEs in an AI-driven economy.

For East Africa, this discussion carries greater weight. The region depends heavily on small and medium enterprises for employment and economic output, but MSME policies remain a secondary concern, routinely postponed until after large-scale projects are finished.

Figures show just how important these enterprises are. According to the Kenya National Bureau of Statistics (KNBS), Kenya alone has over 7.4 million MSMEs, employing approximately 14.9 million people and contributing over 40 percent of national GDP. In Tanzania, the agriculture sector - dominated by micro and small producers - employs 65 percent of the population and generates 28 percent of the GDP, as per the National Bureau of Statistics (NBS) Tanzania.

Across sub-Saharan Africa, SMEs account for up to 90 percent of all registered businesses and produce roughly 50 percent of the region's economic output. The East African Community, with a combined GDP of $296 billion and a population of 331 million, is a bloc whose productive floor is built almost entirely on small and medium enterprises.

And yet the operating conditions facing these firms could be better. World Bank enterprise survey data shows that 53 percent of SMEs across key sub-Saharan markets are either partially or fully credit constrained. The global financing gap for formal MSMEs stands at $5.2 trillion, with informal enterprises adding a further $2.9 trillion to that shortfall.

Access to finance is the most visible barrier but not the only one. Regulatory frameworks across the region are calibrated for established enterprises, not first-time borrowers or seasonal operators. Tax structures penalise formalisation rather than incentivise it. Market access - whether to procurement systems, regional trade corridors, or digital commerce platforms - remains concentrated among larger firms.

The African Continental Free Trade Area has opened a legal pathway to regional markets, but without trade facilitation infrastructure and business development support, most MSMEs cannot walk through the door.

In Kenya, the government acknowledges that nine out of ten young people entering the workforce are absorbed by the MSME economy, yet only 200,000 of the one million youth entering the job market each year find formal employment. This reality defines the stakes in that if MSMEs underperform, youth unemployment does not simply persist - it compounds.

Against this backdrop, the East African Development Bank (EADB) is demonstrating what targeted, intelligent financing can achieve. Through a deployment of just over $100 million across Uganda, Kenya and Rwanda to the Bank's SME financing programs. These programs have supported over 25,000 SMEs and created more than 40,000 permanent jobs.

The approach is pragmatic where rather than channelling capital through multilateral pipelines, EADB has worked through domestic financial institutions with contextual knowledge of local borrowers including Centenary Bank and Housing Finance Bank in Uganda, Sidian Bank and Kenya Women's Finance Trust in Kenya, the Development Bank of Rwanda and Letshego in Rwanda. Repayments are structured around the realities of business cycles, moving away from conventional banking calendars. The result was a 56 percent gender inclusion footprint, with 25,367 women among those employed through the programmes.

Earlier in May, EADB announced a further $13 million fund for youth- and women-led enterprises, alongside a 51 percent increase in profitability and a 140 percent rise in disbursements over the prior year. These outcomes prove that in development finance, impact and profitability are not opposing objectives but mutually reinforcing goals.

What the EADB model demonstrates is that meaningful progress demands more than just additional capital. The Bank will continue to work with its Member States to create an enabling environment where such targeted financing can thrive at scale.

Regulatory frameworks should be redesigned to accommodate informal and semi-formal enterprises, with simplified and digitised licensing procedures. Tax incentives for financial institutions building dedicated SME portfolios should become standard, while digital infrastructure - broadband, mobile payments, and e-commerce - must reach peri-urban and rural areas.

The private sector bears an equally important duty. Banks should move beyond pricing SME lending as high-risk by embracing blended finance and credit guarantees. In the same way, corporates can integrate MSMEs into supply chains, while technology companies develop innovative credit-scoring models based on mobile and trade data to overcome collateral constraints.

As the world discusses the future of small enterprises in an AI-driven economy, East Africa must commit to building an enabling ecosystem that empowers its MSMEs to thrive, innovate, and lead the next generation of inclusive regional growth.