Report: Small Enterprises Holding the Line When Markets Collapse: Lessons from Refugee and Host Community Entrepreneurs in East Africa

Context: In early 2025, the sudden suspension of U.S. foreign aid, which comprised over 80% of international assistance in several East African refugee-hosting countries, triggered widespread disruptions in essential services and livelihoods. This article examines how micro and small enterprises (MSEs) operated by refugees and host communities in these fragile settings demonstrated both vulnerability and resilience amid collapsing markets.

Practice: Led by researchers from Inkomoko, the study conducted a rapid assessment from May to July 2025 in Kenya, Rwanda, Ethiopia, and South Sudan. Employing a partially mixed sequential equal status design, the team analyzed Inkomoko's internal client loan portfolio data from January to July 2025 to track repayment trends, supplemented this with 76 key informant interviews (41 with refugee entrepreneurs and 35 with community leaders, refugee-led organization representatives, and cooperative members) using semi-structured guides to explore demand shifts, financing challenges, and coping strategies, and incorporated a targeted literature review to contextualize findings within broader humanitarian and resilience frameworks.

Impact: Measurable results from the loan portfolio analysis revealed significant deterioration in repayment performance following the aid cuts, with mean principal past due increasing from USD 62.0 in December 2024 to USD 86.7 in March 2025 (p < 0.001), and days past due rising from 73.2 to 106.5 over the same period; by May 2025, there was only modest recovery to USD 83.0 and 108.9 days, respectively. Refugees were hit hardest, showing a portfolio at risk (PAR>30) of 20% and non-performing loans (NPL) of 15%, compared to 12% and 9% for host communities, while youth (PAR>30: 16%, NPL: 13%) and men exhibited higher delinquency than non-youth and women; non-parametric tests confirmed these group differences amid non-normal data distributions.

Anecdotal evidence from interviews highlighted adaptive responses, such as entrepreneurs pivoting to subsistence activities like small-scale farming or bartering, forming informal networks for mutual support, and adopting digital tools including WhatsApp groups for peer mentoring and mobile training to sustain operations. However, women entrepreneurs reported sharper setbacks, including heightened psychosocial stress and business contractions, underscoring the need for targeted cooperative and emotional support amid broader disruptions like food ration cuts, health clinic closures, and reduced education access.

Relevance: This study matters because it exposes the fragility of aid-dependent refugee economies and demonstrates how localized, flexible interventions—like community-driven financing and digital peer networks—can enhance MSE resilience, providing actionable blueprints for humanitarian actors to shift from volatile donor models toward sustainable, private sector-led initiatives that promote self-reliance and localization in similar crisis-prone settings worldwide.

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