Microfinance banks’ loss streak continues for eighth year as deposits, loans shrink

Microfinance banks (MFBs) in the country continue to post operational losses for the eighth year now, depicting their bet on buyouts to stay afloat.

The latest data by the Central Bank of Kenya shows losses for the 14 regulated MFBs more than doubled in a year, hitting Sh2.39 billion as of December 2023.

Compared to the previous year when losses amounted to Sh980 million, it is a 144 per cent jump, as customer deposits and loans shrink further.

Customer deposits in the year under review totalled Sh43.9 billion, declining from Sh46 billion in 2022, a 4.6 per cent drop.

The deposits had also recorded an eight per cent decline from Sh50.4 billion in 2021 to Sh46 billion in 2022 which was attributed to the transfer of funds to alternative attractive investments due to the overall increase in interest rates.

On the other hand, net loans decreased by two per cent from Sh40.1 billion in 2021 to Sh39.3 billion in 2022.

In the year under review, the loan portfolio declined further by 4.7 per cent to Sh37.5 billion as of December 2023.

Competition

The decline in loans was attributed to competition from commercial banks and other credit providers.

"Lending remained the single largest activity undertaken by microfinance banks, as the net loan portfolio accounted for 58 per cent of the microfinance bank's total assets," reads the CBK 2023 Bank supervision report.

Generally, the microfinance sector registered an 8.8 per cent decline in total assets in the year under review.

The total assets as of December 31, 2023, stood at Sh64.2 billion, in comparison to Sh70.4 billion reported in the year ended 2022.

Microfinance banks in the country are now largely banking on the sale of controlling stakes to foreign firms to end a run of over seven years now in losses and shore up their businesses.

A streak of financial losses, eroded capital and shrinking market share has given large banks and digital lenders an easier task to beat MFBs but these microfinanciers are seemingly not ready to go down without a fight.

They are increasingly turning to new shareholders, mostly foreign-based institutions, through buyouts to get a new lease of life.

On the receiving end, foreign investors are spending millions of shillings to close these deals, which mirror the trend in the commercial banking sector, where many struggling banks have been acquired.