Microfinancier Real People’s Kenya profit drops 26pc on shilling volatility

Microfinancier Real People recorded a 26.7 per cent drop in profit for the full year ending March, which it attributed to lower gains from foreign exchange and increased provisions for bad loans.

The shilling has depreciated against the South African currency by nearly six per cent, resulting in the drop in forex earnings.

The lender currently has South African Rand denominated loan equivalent to Sh1 billion which it is repaying at 12.6 per cent.

The South African micro-lender recorded an after tax profit of Sh146.5 million for the period compared to Sh185.7 million a year earlier.

“The drop in after tax profits was due to volume and price effects on the Rand denominated loans that we hold. During the year, we repaid a substantial amount of this loan and at the same time the shilling depreciated resulting to a lower foreign exchange gain compared to previous year,” said the microlender in response to the Business Daily queries through email.

Real People’s loan book shrunk by 22.1 per cent over the same period to Sh1.6 billion from Sh2.1 billion in 2014. Real People management said this was due to a decision made to slow down loan origination to finalise on capital drive.

The lender’s non-performing loans stood at Sh446 million up from Sh160 million. It set aside Sh579 million in provisions, more than 100 per cent of the bad loans.

Microfinanciers have higher default ratios compared to banks due to the risks they take, which is why they compensate by pricing their loans higher than banks.

Last week it closed the sale of its Sh2 billion bond, being the first tranche of a Sh5 billion corporate debt. The lender is yet to disclose how the bond performed. The bond had a return of 13.65 per cent for those who opt for fixed terms and 2.75 per cent above the prevailing 182-day Treasury bill yield for the five-year floating rate note.

The microlender had indicated it needed more cash to fund business growth.

READ: Microlender Real People shrugs off negative rating

In 2009, Central Bank of Kenya introduced microfinance banks which are allowed to collect deposits from the public in order to cut the cost of funding.

There are 12 licensed deposit taking microfinance institutions in the country. However only four converted from credit only institutions, a fact that has been attributed to high cost of converting.

The Association of Microfinance Institutions (AMFI) has attributed the low conversion rate to inability to get new cash rich investors who are able to dilute current owners to the required levels of 25 per cent.

Real People holding International owns 99.96 per cent of the Kenyan subsidiary.

The lender started operations in Kenya as a credit only microfinance in 2006 and has grown to become the largest credit-only microlender in Kenya. It has 10 branches in the country and seven satellite offices.