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Mobile lender Branch to buy Sh230m microfinance majority stake

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A trader counting money. FILE PHOTO | NMG

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Summary

  • The San Fransisco California-headquartered fintech with offices in Lagos, Mumbai, and Nairobi has received regulatory nod to acquire a 84.89 percent stake in Century Microfinance Bank.
  • Competition Authority of Kenya (CAK) has already cleared Branch for the deal that will give it control in the deposit-taking microfinance institution that was licensed in September 2012 with focus on agricultural finance.

US-based digital lender Branch International will pay Sh230 million for a majority stake in a local microfinance bank, amid proposed tough regulations for mobile lenders in Kenyan market.

The San Fransisco California-headquartered fintech with offices in Lagos, Mumbai, and Nairobi has received regulatory nod to acquire a 84.89 percent stake in Century Microfinance Bank.

Competition Authority of Kenya (CAK) has already cleared Branch for the deal that will give it control in the deposit-taking microfinance institution that was licensed in September 2012 with focus on agricultural finance.

“The acquirer and the target will each maintain the terms agreed with the borrowers in respect of all loans existing in their loan books at the time of the acquisition,” said Wang’ombe Kariuki, CAK director general.

The deal comes on the back of Central Bank of Kenya (Amendment) Bill of 2021 that will see the regulator control digital lender’s products, management, and sharing of borrowers' information.

CBK will have powers to vet the management of digital loan providers, signalling a requirement to have a local office.

The digital lenders will be also required to obtain annual licences from the regulators, maintain minimum capital ratios and declare their loan charges.

Century was licensed as the seventh deposit-taking microfinance and posted Sh43 million net loss in 2019, with a market share at 0.3 percent.

The microfinance had Sh99 million as deposits and Sh348 million asset base, putting it a small peer category of the sub-sector with 14 players.

CAK says both Branch and Century will each retain their existing performing and non-performing loans until the expiry of such loans.

Both Branch and Century are micro lenders with the latter targeting individuals as well as micro, small and medium businesses.

Branch, like with other digital lenders such as Tala, rides heavily on customer data to decide on the loan sizes in the unregulated market.

But the digital lenders have been accused of breaching customer privacy by exposing loan defaulters to friends and relatives to force repayment.

The Century deal means Branch will have to contend with a regulated market unlike its primary playing field where digital lenders have been accused of charging customers very high interest rates.

Microfinance banks have been facing challenges including reduced appetite by customers to put money in small financial institutions following the collapse of Chase, Imperial and Dubai banks in quick succession.

The micro-lenders have had to turn to expensive loans for on lending to customers, leading to reduced profitability.

The 14 microfinance banks posted a Sh1 billion loss in the 12 months to June, an increase from Sh0.7 billion loss that was recorded in the previous year similar period.