Banks ‘poaching’ on microfinanciers’ turf as battle for small savers intensifies

“With this law in place, MFIs will offer banks competition on a level playing field,” said Mr Nkungi. whose 42-member outfit draws its membership not just from MFIs, but also from banks.

He says that Barclays, Equity, K-Rep and Co-operative Bank as well as insurance companies are members of the AMFI.

Mr Nkungi asserts that competition between banks and MFIs will be healthy “if properly done and when none undermines the other.”

He agreed that the banks have been “poaching” the best clients of MFIs.

“The banks not only keep our cash but also our clients’ cash, so they are able to identify the good clients of MFIs — whom they have been poaching by advancing loans against their deposits. So, right now, MFIs are losing, but starting from April 30, MFIs will be legally empowered to collect deposits and manage their own accounts.”

That banks have entered the turf of MFIs is underscored by the fact that many have gone rural following what is now referred to as the “Equity revolution” — sparked by Equity Bank allowing potential clients to open accounts with zero balance.

Thereafter, a lot of other banks have taken the cue and begun offering no-collateral loans of as low as Sh50,000. Mr Nkungi says that, in effect, the banks have adopted the MFI modus operandi

“This is a normal transition, the clients in question cannot stay with MFIs for ever” said Ms Gakuru. She also argued that the movement of groups from MFIs to banks is a sign of growth in the national economy. “What MFIs should be doing is acquiring new clients.”

Up to 100 per cent of savings groups and SMEs’ deposits are currently held by banks, who reportedly offer them 2.5 per cent to 6 per cent interest on the deposits then lend out the money at between 11 per cent and 12.5 per cent per annum (depending on the type of loan).

Insiders says the effective lending rate could be much more because of hidden charges fees and charges that are usually not put down in the loan agreements.

The Act has already enabled the Kenya Women Finance Trust (KFWT) to be allowed to take deposits by the Central Bank, making it the first microfinance institution to benefit from the provisions of the Act.

Besides this, Faulu Kenya has also been given a provisional license.

In the course of this year alone, 12 MFIs are likely to get similar licences once they comply with the relevant regulations.

Besides being allowed to accept deposits, the MFIs will be allowed to access funds from different sources and can even bid for equity capital. But they will have to meet quite stringent conditions including retaining between Sh20 million and Sh60 million as core capital.

It has been a long struggle. Mr Nkungi recalled, “When we approached the government eight years ago with the idea of a regulatory statute, they said we were too small and did not want to deal with us.”