NAIROBI, Kenya – Kenya’s microfinance banks are increasingly turning to commercial lenders to sell off loans in a bid to contain mounting defaults, shrinking deposits and intensifying competition from both mainstream banks and digital credit providers.
A new report by the Central Bank of Kenya (CBK) shows that the 14 licensed microfinance banks (MFBs) are struggling to sustain growth, forcing many to scale back lending and transfer risky loan portfolios to bigger banks.
In such deals, the commercial banks pay off the outstanding principal and interest, taking over the responsibility of collecting future repayments.
According to CBK’s 2024 annual supervision report, the sector’s loan book fell by Sh6.3 billion, or 16.8 per cent, from Sh37.5 billion in 2023 to Sh31.2 billion last year.
“This decline in loans was attributed to a strategic decision to reduce lending to manage non-performing loans, loans sold off to other lenders, and heightened competition from other credit providers,” the regulator said.
Despite the restructuring, non-performing loans continued to climb, rising to Sh7.38 billion in 2024 compared to Sh6.37 billion a year earlier.
The slowdown in credit growth and loan disposals eroded interest income, dragging the sector to a pre-tax loss of Sh3.5 billion — the ninth consecutive year of losses. The industry last posted a profit in 2015.
Only four MFBs managed to turn a profit last year: U&I (Sh84 million), Caritas (Sh50 million), Choice (Sh44 million) and Sumac (Sh1 million).
The rest sank deeper into the red, with Kenya Women Microfinance Bank (Sh1.6 billion), Faulu Microfinance Bank (Sh1.04 billion) and SMEP Microfinance Bank (Sh409 million) posting the largest losses.
The report highlights that microfinance institutions are rapidly losing ground to commercial banks and mobile lenders, both of which have expanded branch networks and adopted advanced digital platforms.
The number of MFB branches dropped from 115 to 107, while agency outlets shrank from 677 to 539.
At the same time, deposits dwindled, leaving institutions with widening funding gaps and high operating costs.
This has triggered a wave of consolidation. In the last three years, at least six MFBs — SMEP, Maisha, Key (formerly Remu), Century, Choice and Uwezo — have been acquired through multimillion-shilling buyouts as investors move in to salvage struggling lenders.
The sector’s future, analysts warn, will depend on its ability to innovate, attract capital and regain public confidence amid unrelenting competition for Kenya’s fast-shifting credit market.
