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Micro-lenders sell-off loans to banks as defaults rise
The micro-lenders’ pre-tax loss widened to a record Sh3.5 billion in 2024 from the prior year’s loss of Sh2.4 billion as their revenue shrank and operating costs piled.
Microfinance banks (MFBs) have resorted to selling off part of their loan book to commercial banks as they grapple with mounting defaults, falling deposits, and rising competition.
Latest disclosures by the Central Bank of Kenya (CBK) show that the 14 MFBs under its regulation continue to struggle in the highly competitive financial sector, making it difficult to expand their loan book.
Hit by rising defaults on loans dispensed, the micro-lenders are now selling part of their loan book to commercial banks and reducing the issuance of new loans to limit exposure.
Banks – particularly smaller ones – often sell loans to free up capital for lending to other customers. In such deals, another bank pays the outstanding principal and any accrued interest, then takes over the collection of future interest payments.
CBK annual supervision report shows that the 14 micro-lenders saw their loan book shrink by Sh6.3 billion or 16.8 percent to Sh31.2 billion in 2024, down from Sh37.5 billion in the previous year, mainly because they sold off part of their loan book.
“This decline in loans was attributed to a strategic decision to reduce lending to manage non-performing loans, loans sell-off to other lenders, and heightened competition from other credit providers,” notes CBK in the report.
Despite the sell-off and reduced lending, net non-performing loans surged to Sh7.38 billion from Sh6.37 billion during the review period.
Theand slowed lending meant reduced interest income, which saw the micro-lenders post a combined loss for the ninth straight year. The performance highlights the impact of large banks and digital lenders raiding their turf and leaving them with fewer customers.
The micro-lenders’ pre-tax loss widened to a record Sh3.5 billion last year from the prior year’s loss of Sh2.4 billion as their revenue shrank and operating costs piled.
Last year’s performance means that micro-financiers have now gone without profits for 10 years since 2015. Their pre-tax profit stood at Sh592 million in 2015, which was a decline from the record Sh1 billion they had registered in 2014.
Out of the 14 licensed MFBs, only four posted profits last year. The profit-makers were U&I (Sh84 million), Caritas (Sh50 million), Choice (Sh44 million) and Sumac (Sh1 million), while the remaining 10 incurred losses.
The largest contributors to the sector’s overall loss were Kenya Women Microfinance Bank, Faulu Microfinance Bank and SMEP Microfinance Bank, which reported pre-tax losses of Sh1.6 billion, Sh1.04 million and Sh409 million, respectively.
MFBs are struggling to compete on physical branches as well as on technology. The sector last year cut physical branches to 107 from 115 while its agency outlets reduced by a fifth to 539 from 677.
The sustained losses, rising costs, and falling deposits have forced the micro-financiers to go to the market in search of fresh capital, most of which has come in by ceding their stakes to new investors.
Out of the 14 micro-financiers regulated by the CBK, at least six—SMEP, Maisha, Key (formerly Remu), Century, Choice, and Uwezo—have been acquired over the past three years through multi-million shilling deals.
