Market leader Kenya Women Microfinance Bank, formerly KWFT, was the major casualty closing in a loss-making position Sh1 billion.
The poor performance of the sector was largely attributed to the reduction in financial income by 7.6 percent or Sh0.85 billion, with a corresponding increase in expenses by three percent or Sh382 million.
Microfinance banks’ gross loss more than doubled to Sh1.4 billion last year as interest income dropped and expenses rose in chase for deposits.
The significant drop of 131 percent from the previous year’s Sh622 million came in the period 10 microfinance institutions posted losses leaving only three in profit.
Kenya’s financial sector has been rewarding to top large banks, leaving lower tier lenders and microfinance banks in distress.
Market leader Kenya Women Microfinance Bank, formerly KWFT, was the major casualty closing in a loss-making position Sh1 billion.
Central Bank of Kenya (CBK) data shows the poor performance of the sector was largely attributed to the reduction in financial income by 7.6 percent or Sh0.85 billion, with a corresponding increase in expenses by three percent or Sh382 million.
“The increased expenses related to financial costs aimed at attracting deposits, and additional provisions made by the sector to comply with the requirements of the newly implemented International Financial Reporting Standard (IFRS) 9,” the CBK observed.
Customer deposits increased by 5.3 percent from Sh38.9 billion in 2017 to Sh41 billion despite the attractive rates and aggressive mobilisation through agency banking and mobile phone platforms.
The poor performance plunged the sector into negative two percent return on assets and negative 13.8 percent return on equity. It compared unfavourably with negative 0.9 percent and negative 5.5 percent reported in the previous year.
Three microlenders — Daraja, Maisha and Choice — were in breach of the minimum core capital required to run a microfinance bank.
Choice also failed to meet the required minimum liquidity ratio of 20 percent. The diaspora-backed microfinance shareholders will cede majority stake to a strategic investor as it seeks fresh capital to finance expansion and boost lending capacity.
The poor performance comes amid the looming review of the legal and regulatory frameworks for the Microfinance Act, which is proposing among other things increased disclosure and rising of capital levels.
All microfinance banks will be required to display a copy of their last audited financial statements together with the full names of all directors and significant shareholders in a conspicuous position in every office and branch in draft law published in May.
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