Microfinance institutions that got Central Bank of Kenya’s approval to collect customer deposits have raised nearly Sh7 billion in about two years, the lenders’ financial statements for 2012 show.
This has given the deposit-taking microfinance institutions (DTMs) headroom to cut their reliance on expensive borrowings as increased customer deposits provide an alternative source of cash.
The 2012 financial results of Faulu Kenya DTM, Rafiki DTM, SMEP DTM and Kenya Women Finance Trust (KWFT) DTM show their collective customer deposits rose by 168 per cent, from Sh2.6 billion in 2011 to Sh6.9 billion in 2012.
Borrowings on the other hand went up by only four per cent in the second year since the DTMs were licensed, while the income from interest on loans went up by Sh1 billion or 23 per cent, reflecting the expanded loan books.
Faulu Kenya for instance saw its loan book rise from Sh3.3 billion in 2011 to Sh5.03 billion last year. Its borrowings went down from Sh2.42 billion to Sh2.16 billion as customer deposits rose by Sh2.35 billion to stand at Sh2.98 billion in 2012.
Rafiki general manager George Mbira said the increased customer deposits had helped them reduce the dependence on borrowed funds.
“We now have close to Sh600 million in deposits, helping us expand our loan book. For us, when we borrow in foreign currency, we can get a good rate of about four per cent, but when you factor in hedging costs the rate rises to around 15 per cent,” said Mr Mbira.
This increase in income helped three of the DTMs record big rise in profitability, with only KWFT recording reduced profits from Sh302.4 million in 2011 to Sh173.8 million in 2012 following an increase of Sh345 million in staff costs.
Faulu Kenya net profits for 2012 went up by 119 per cent from Sh25.6 million in 2011 to Sh58.2 million. SMEP reported a 104 per cent rise in net profit to Sh53 million from Sh25.8 million in 2011.
Rafiki turned around a net loss of Sh15.4 million in 2011 into a Sh5 billion profit in 2012.
Remu, Century and community-based Uwezo DTM are yet to report their full year results, having been set up less than one year ago.
Mr Mbira, however, noted that there were challenges for DTMs seeking to establish their presence in the market given the stringent regulations and problems with capital and technology.
“We are lucky because we have a banking background with our partner bank (Chase Bank). For DTMs, the infrastructure costs to set up banking halls are high, up to Sh70,000 per square foot, and also setting up the technology required. Customers are used to high standards in banks, and you have no choice but to keep up,” said Mr Mbira.
The rules hit harder on microfinance institutions seeking to convert to DTMs than those setting up as DTMs from the onset. SMEP chief executive Phyllis Mbungu said that while mobilising customer deposits is slower than they would like, they expect CBK and Treasury to change rules to allow DTMs attract big depositors.
“At the moment we are not able to offer current accounts or cheque books. We expect the regulatory framework to change to clear these hurdles and enable us attract the big savers,” said Ms Mbungu.
DTMs are also at a disadvantage when it comes to provisions for bad loans as they are supposed to classify a loan that is not serviced for more than three months as a loss, while banks have 12 months.
Ms Mbungu said the outlook remains bright, adding that her institution is eyeing a key role in disbursing the Sh6 billion women and youth fund promised by President Uhuru Kenyatta.