Majority of the micro-lenders are owned by non-financial institutions or individuals who are required by regulations to slash their shareholding to a quarter upon upgrading into deposit taking microfinance institutions (DTMs).
Microfinance firms have kept away from converting into deposit-taking institutions in the past four years citing huge capital requirements.
The Association of Microfinance Institutions (AMFI) attributed the reluctance to inability to get new cash-rich investors able to dilute current owners down to the required level of 25 per cent.
Majority of the micro-lenders are owned by non-financial institutions or individuals who are required by regulations to slash their shareholding to a quarter upon upgrading into deposit taking microfinance institutions (DTMs).
“It requires a lot of mobilisation to dilute the current owners; this is the biggest challenge,” said the association chief executive Benjamin Nkungi.
Following the introduction of the microfinance banks in 2009, three lenders converted in quick succession. They were Faulu Kenya in 2009, followed by KWFT and SMEP the following year.
However, the newly formed MFIs have found it easy to take that route since there are no demands tied to ownership background.
SMEP, majority owned by National Council of Churches of Kenya (NCCK), has made two public share offers in an effort to dilute the church organisation but has not been successful.
The church still owns an estimated 73 per cent of the microfinance bank.
Faulu Kenya brought on board deep-pocketed South Africa-based financial institution Old Mutual in a Sh3.6 billion deal that helped it to comply with the ownership requirement.
Old Mutual took up 67 per cent ownership in the company, concluding Faulu’s two-year process that had seen it engage more than 20 potential financial partners as likely investors.
Vision Fund Kenya, previously Kadet, which is majority owned by Christian fund World Vision, had started the process of converting by 2012 but is yet to conclude the journey with those close to the process attributing the slow movement to the challenge of getting new investors.
Security standards
The institution had invested in a new information technology platform and started reconstructing its branches to meet CBK security standards.
Those who have converted to microfinance banks had a tumultuous first year due to the capital expenses involved but recorded improved performances later.
Faulu and KWFT more than doubled their net profits last year.
There are nine microfinance banks in the country with a loan book of Sh29.6 billion and deposits of Sh27.8 billion as at the end of March.
The number of deposit and loan accounts stood at 2,154,982 and 442,518 respectively.
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