Central Bank licenses new deposit-taking microfinance

The Central Bank of Kenya (CBK) has licensed a new micro-finance institution to collect deposits from the public as it seeks to make financial services accessible to more people.

Century Deposit Taking Microfinance (DTM), which will be based at Gikomba, becomes the seventh such institution to be licensed by the regulator following to passage of law allowing for their creation in 2008.

“The DTMs’ primary focus is agricultural finance and, in this regard, the DTM intends to target smallholder farmers by offering agriculture-based credit and savings products,” said the CBK in a statement.

The Central Bank said that Century DTM would adopt a value-chain approach while lending to farmers which will see it finance them in four stages: preparatory, pre-harvest, post-harvest and processing stages in order to protect itself from the high risks associated with agriculture financing.

Century DTM is a nationwide institution indicating that it could open branches in countrywide unlike the community-based ones such as Uwezo DTM whose operations are limited to specific location. Uwezo confines its operations to Starehe Division in Nairobi.

The introduction of the law allowing creation of DTMs was expected to see older microfinance institutions (MFIs) transform themselves into the new entities due to their grassroots presence but it has instead seen mostly new institutions such as Century, Rafiki and Remu DTM come up.

Tough conditions

Faulu Kenya, Kenya Women Finance Trust and Small and Micro Enterprise Programme are the only MFIs that have transformed into DTMs.

The failure of most MFIs to change into DTMs has been attributed to tough conditions put in place by the regulator. The stringent conditions have seen those that had transformed suffer a huge drop in earnings discouraging other players from converting. The essence of transforming to deposit taking was to allow the institutions access cheaper funds, which they could then lend to the public at a lower rate rather than depending on expensive credit from financial institutions, which forces them to charge high rates on their borrowers.

However, the cost of new recruitment, staff training, physical and information technology infrastructure upgrade has proved to be higher than the benefit of collecting cheaper profit.

The CBK has said that it is willing engage in talks with the MFIs on the terms while also allowing them to use their previous sales office as branches.

Deepened financial inclusion has been a major agenda of the regulator which has seen it introduce the concept of DTMs, agency banking and mobile banking.

As at the end of June, the deposit taking micro-finance institutions had mobilised deposits worth Sh12.3 billion with a total loan portfolio value of Sh17.9 billion.