Kenya’s 14 microfinance banks more than halved their pre-tax losses last year to Sh877 million, helped by reduced loan loss provisions.
The institutions marked their sixth year of consecutive losses, having reported a loss before tax of Sh2.2 billion in 2020 that was attributed to a lower appetite for loans and increased defaults in the wake of the Covid-19 pandemic.
“The improvement in the performance of the sector in the year is attributed to a decline in total expenses by seven percent to Sh12.9 billion in 2021 from Sh14 billion in 2020,” the Central Bank of Kenya says in its latest supervision report.
“The decline in expenditure is largely attributed to a reduction in provisions for loan impairment by 52 percent from Sh1.7 billion in 2020 to Sh817 million in 2021, due to improved economic conditions following the easing of Covid-19 containment measures.”
The small lenders have struggled to post profits despite the economic recovery and their ability to charge higher interest rates compared to banks whose average lending rate stands at 12.2 percent.
Only four micro-lenders reported profits, while the rest registered losses.
Microlenders such as Faulu Microfinance Bank, Maisha and Rafiki Microfinance Bank Limited took the largest loss positions of Sh522 million, Sh178 million and Sh153 million respectively.
The industry has faced stiff competition from mobile lenders amid increasing uptake of financial services through mobile, a shift also pushing commercial banks to adopt digital solutions to widen their reach.
Microfinance bank’s net loans in the year dropped by 9.2 percent to Sh40.1 billion. However, investment in government securities rose by 33 percent to Sh5.7 billion.
The loss-making status of the industry is also pulling investors to acquire some of the failing microfinance banks.
Recently, digital lender, Branch International, acquired 84.89 percent majority stake of Century microfinance bank.
The move will see the mobile lender provide savings and investment services, money transfers, and repayment of bills as the fintech seeks to expand as a digital bank in the market.
Branch had engaged other three microfinance banks before settling on Century, which met its requirements based on years of operations, capital adequacy ratios, strategy in the market, and governance structures.
