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

The suspension of United States foreign aid in early 2025, which constituted more than 80% of international assistance in several refugee-hosting countries, created a sudden funding shock with wide-ranging consequences for refugee livelihoods. This study examines the effect of these cuts on micro and small enterprises (MSEs) operating in refugee settings, which are central to livelihood and market resilience. Drawing on a rapid assessment conducted in Kenya, Rwanda, Ethiopia, and South Sudan, in May-July 2025, the study employed a partially mixed sequential equal status design, combining Inkomoko’s client loan portfolio data, 76 key informant interviews, and a targeted literature review. Results indicate that reduced aid flows contributed to declining household purchasing power, increased loan defaults, and business closures, alongside severe disruptions in food, health, and education services. Evidence also points to both fragility and resilience: repayment stress was most acute among refugees, with deterioration in early 2025 and only marginal recovery thereafter. At the same time, entrepreneurs demonstrated adaptive strategies; shifting toward subsistence activity, leveraging informal networks, and adopting digital tools. Business continuity was sustained through mobile training, WhatsApp groups, peer mentoring, and flexible financing, though women entrepreneurs faced sharper setbacks, underscoring the need for psychosocial and cooperative support. The study concludes that although refugee businesses remain highly exposed to aid volatility, their adaptive capacity can be strengthened through flexible, localized, and community-driven models that reinforce resilience in shifting humanitarian landscapes to a market systems thinking and focus on sustainable and private sector-led initiative.