BY ANTONY MUTUNGA
With the World Health Organization (WHO) recently announcing that COVID is no longer a global health emergency, it seems like a nightmare that three years ago, the virus led to a pandemic that made economies destabilize and the world standstill.
Industries were heavily affected, with the integration of technology being the only savior –those who navigated the difficult period and sustained profitability, made the shift in good time. Millions of users flocking online, through online banking and mobile banking, contributed to the double digit growth of financial sector players.
According to the Central bank of Kenya (CBK), commercial banks recorded a profit before tax of Sh240.4 billion in December 2022 surpassing the Sh197.0 billion recorded in the same period in 2021.
On the flipside, Kenya’s microfinance banks have been struggling. In 2022, the microfinance sector posted a record net loss of Sh1.30 billion. This was an over 50% increase in comparison to 2021, where they recorded a net loss of Sh734 million. The increase in loss is strongly linked to competition as many users now prefer to access financial services through their mobile.
2022 saw microfinance banks witness a decrease in their income as customers deposits, which account for a majority of their funding, 66%, decreased by 7.8% from Sh50.4 billion in 2021 to Sh46.5 billion. With alternative investments offering better interest, many of their customers transferred their funds to fully fledged banks causing the decline.
Faulu microfinance bank, which holds the largest market share and the most customer deposits in the sector, recorded a decline of 22.9% in customer deposits from Sh21.1 billion in 2021 to Sh16.3 billion.
With not only competition from mobile lenders but commercial banks, their net advances also took a hit, decreasing to Sh39.3 billion from Sh40.1 billion. The net income for the total 14 microfinance banks in Kenya decreased from Sh13.4 billion in 2021 to Sh 13.2 billion in 2022 while the net expenses increased from Sh12.9 billion to Sh13.1 billion.
With declining figures, the microfinance sector registered a 4.8% decline in total assets in the year 2022. The total assets as at December 31, 2022 stood at Sh70.4 billion, in comparison to Sh73.9 billion reported in the year ended 2021. The sector also a reduction in the number of agents from 1,010 in December 2021 to 921 in December 2022.
Out of the 14-microfinance institutions, only four managed to record profits in 2022; Caritas microfinance bank recorded the highest revenue in 2022, Sh32 million followed by U & I microfinance bank (Sh24 million), Sumac microfinance bank (Sh6 million), and SMEP microfinance bank (Sh5 million). The rest of the institutions all recorded losses, with three of them recording losses of over Sh100 million.
Maisha microfinance bank managed a staggering loss of Sh498 million in 2022 while Faulu microfinance bank and Rafiki microfinance bank recorded losses of Sh321 million and Sh314 million respectively. Despite, closing down three branches in the year, Faulu managed a loss before tax of Sh14 million but due to having a deferred tax of Sh295 million in its balance sheet, its net loss increased.
Even though the sector continues to record losses year after year, it is also attractive to investors as they seek to acquire the stake in the sector through the failing institutions. Digital lenders, having become more popular and looking for ways to expand, identify microfinance institutions as a step to further growth and revenue. For instance, digital lender, Branch International, acquired an 84.89% majority stake in Century microfinance bank as part of its expansion strategy.
This remains one of the solutions for the sector to return to profits, something that is yet to happen again since 2015. Microfinance banks will continue to sink deeper into financial losses unless they turn into more attractive investment vehicles that are able to compete with not only digital lenders but commercial banks as well.
