Microfinanciers are struggling to keep customers as large banks and digital lenders raid their turf through innovative products, leaving them with piling losses and diminishing capital.
The once-attractive market for borrowers seeking small loans and savers chasing high returns has taken a strong beating from competitors, putting micro-lenders on the edge.
The 14 Central Bank of Kenya (CBK)-regulated microfinance banks posted a Sh1 billion loss in the 12 months to June–a jump from Sh0.7 billion loss that was recorded in the previous year’s similar period.
But their agony is deeper than just losses. Their capital levels are falling, loan accounts are shrinking and deposits are not coming in as much as they would have wanted.
For clients, the allure for a one-stop shop is growing. Yet micro-financiers are lagging.
Customers are increasingly seeking for an entity that can offer both small and large loans, give some form of insurance and wealth management products and above all, package all these in digital form, while leaving physical branches open.
And large players such as KCB, Cooperative Bank, Equity and NCBA, riding on their popular brands and strong financial muscles, are perfecting this at the expense of microfinance banks.
Digital lenders
The years 2015 and 2016 offer some answers to how large banks and digital lenders turned tables on microfinanciers.
Between 2015 and 2019, microfinance banks’ active loan accounts have shrunk by 78,700 or 23 percent to a record low of 263,300. They had about 600,000 loan accounts a decade ago.
Active deposit accounts were at 1.946 million but took a fall to 874,359 accounts at the end of 2016 partly in reaction to fears that small financial institutions could no longer guarantee safety as much as they promised high returns.With Chase Bank, Imperial Bank and Dubai Bank having sunk into receivership with billions of shillings in deposits, customers’ mentality shifted from just chasing high returns to prioritising safety.Microfinance banks lost Sh1.66 billion in deposits between 2015 and 2017 and took another two years to attract Sh4.7 billion amid aggressive marketing .Segmenting of the financial sector into stable and weak institutions as opposed to high and low interest payers on deposits set in, with customers gifting large and stable banks with more deposits.Loss of large deposits–above the then fully insured Sh100,000– rattled micro-financiers, weakening their ability to lend.Micro-financiers had to find a way out. And the only exit door they stumbled upon was to borrow expensively and, therefore, lend on […]
