Kenya’s 14 microfinance banks more than halved their pre-tax losses last year to 877 million shillings, helped by reduced loan loss provisions.
The institutions marked their sixth consecutive year of losses, after recording a pre-tax loss of 2.2 billion shillings in 2020 which was attributed to a lower appetite for loans and an increase in defaults following the Covid-19 pandemic.
“The improved performance of the sector over the year is attributed to a decline in total expenditure of 7% to 12.9 billion shillings in 2021 from 14 billion shillings in 2020,” the Central Bank of Kenya said in a statement. his last supervision report.
“The drop in spending is largely attributed to a reduction in loan impairment provisions of 52%, from Sh1.7 billion in 2020 to Sh817 million in 2021, due to improved economic conditions following the easing of the containment measures of Covid-19.”
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%.
Only four micro-lenders reported profits, while the rest recorded 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 fierce competition from mobile lenders amid growing adoption of financial services via mobile, a shift also pushing commercial banks to adopt digital solutions to expand their reach.
The microfinance bank’s net lending during the year fell 9.2% to 40.1 billion shillings. However, investment in government securities increased by 33% to reach 5.7 billion shillings.
The loss-making status of the industry is also pushing investors to acquire some of the failing microfinance banks.
Recently, digital lender, Branch International, acquired an 84.89% majority stake in microfinance bank Century.
The move will see the mobile lender provide savings and investment services, money transfers and bill repayment as the fintech seeks to grow as a digital bank in the market.
Branch had hired three other microfinance banks before settling on Century, which met its requirements based on years of operation, capital adequacy ratios, market strategy and governance structures.