Banks, telcos, digital creditors scramble for struggling micro lenders’ customers

Sunday May 05 2024

The MFBs have also become targets for acquisition by commercial banks. PHOTO | SHUTTERSTOCK


Kenya’s microfinance banks (MFBs) are facing uncertain growth prospects as banks, telecommunications companies and the digital credit providers scramble for a piece of the low-end market with similar financial products and services.

The institutions’ thinning revenues and weakening balance sheets have opened up the sub-sector to stiff competition and even acquisition by commercial banks.

The Central Bank of Kenya says that the MFBs’ slow growth has raised viability concerns, as new players such as digital lenders target the same customer base.

“Slow growth in loans and profitability raises viability issues of MFBs, with new players targeting the low end of the market, especially digital credit providers, as well as funding challenges that limit lending capacity,” says the CBK.

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Consultancy firm KPMG places the total value of disbursed loans by the digital lenders in 2018 at Ksh116.8 billion ($878.19 million), citing a report by Financial Sector Deepening (FSD) in 2019.


Microfinance is a category of financial services targeting individuals and small businesses who lack access to conventional banking and related services. It includes microcredit, the provision of small loans to poor clients, savings and checking accounts, micro insurance and payment systems.

While the full audited financial statements of the MFBs for the year 2023 have not been made public, the financial performance for the eight years to 2022 paints a grim picture of their growth prospects.

Between 2015 and 2022, the subsector grappled with declining loan disbursements, falling deposits, rising non-performing loans (NPLs), and declining return on assets and return on equity.

Consequently, their capital and the shareholder funds were eroded to as low as Ksh8.75 billion ($65.78 million) in 2022, from Ksh11.63 billion ($87.44 million) in 2015. The period was characterised by seven consecutive years of losses, widening to Ksh980 million ($7.36 million) from Ksh377 million ($2.83 million) in 2016.

The loss was Ksh2.2 billion ($16.54 million) in 2020. In 2022 only four of the 14 MFBs recorded profits.

Two recorded profits of Ksh17 million ($127,819.54) each; one had Ksh36 million ($270,676.69) in profit and one had Ksh131 million ($984,962.4) in profit.

The remaining 10 recorded losses ranging from Ksh8 million ($60,150.37) to Ksh522 million ($3.92 million).

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Their return on assets and return on equity remained in negative territory, while their capital and liquidity levels declined. Four did not meet capital requirements, while two did not meet minimum liquidity ratios.

The central bank, in its Financial Sector Stability Report (September 2023) says the MFB subsector remains weak and vulnerable to even the mildest shocks, given its low level of key indicators.

According to the Kenya Banks Association (KBA), the asset quality of MFBs has continued to deteriorate, with the coverage ratio edging downwards.

The quality of the MFBs’ credit portfolio deteriorated to 14.5 percent in 2022 from 13.7 percent in 2021 and the coverage ratio — provision for loan impairment as a proportion of net NPLs — declined to 2.3 percent from 14.8 percent in the same period.

Big banks such as KCB, NCBA, Equity, Absa, Stanbic, I&M and Cooperative have raided the mass market with financial products targeting individuals and small business through the high volume, low margin model to maximise sales and acquire new customers.

Retail banking offers financial services to the public ranging from everyday spending on needs such as food to life events such as buying assets.

NCBA Bank, for instance, is runs M-Shwari in partnership with Safaricom’s money transfer platform M-Pesa, which allow individuals save and borrow through their phones while earning interest on money saved. The facility allows one to open and operate an M-Shwari account through their mobile phones via M-Pesa, without having to visit a bank or fill out any forms.

M-Shwari allows customers to access loans from as low as Ksh100 ($0.75) to Ksh50,000 ($375.93).

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Safaricom, on the other hand, runs an overdraft facility, Fuliza, which allows M-Pesa customers to complete their transactions even when they do not have funds in their M-Pesa accounts.

Meanwhile, in the past three years, six microfinance banks have been acquired by foreign investors.

Uwezo Microfinance Bank Ltd was acquired by Salaam African Bank of Djibouti to form Salaam Microfinance Bank Ltd, Choice Microfinance Bank Ltd was bought by Wakanda Network Ltd to form Choice Microfinance Bank Ltd, while Century Microfinance Bank Ltd was acquired by Branch International Ltd to form Branch Microfinance Bank Ltd, among others.

Others are Key Microfinance Bank Ltd, acquired by Lolc Mauritius Holdings Ltd to form Lolc Kenya Microfinance Bank Plc, Daraja Microfinance Bank Ltd, acquired by UMBA Inc to form Daraja Microfinance Bank Ltd, and Maisha Microfinance Bank Ltd, acquired by Cactus Cantina Investments Ltd to form Maisha Microfinance Bank Ltd.

In 2013, Faulu Microfinance Ltd was acquired by Old Mutual Holdings Ltd.

Staff costs take the biggest proportion of the MFBs’ total expenses, at 27.9 percent, followed by interest expenses on deposits (25 percent), according to KBA’s data for 2022.

Pan-African credit rating agency Agusto & Co in its ‘Kenya Microfinance Industry Report (2023)’ says the government’s aggressive tax collection regime following the enactment of the Finance Act 2023 has resulted in a decline in household disposable incomes, impairing their ability to service existing debts.