Small businesses dump microlenders for banks

KCB Kencom branch tellers serve customers. PHOTO | ANTHONY KAMAU | NMG Medium and small businesses slashed their deposits in microfinance banks by 62.6 percent in 2018 to Sh10.28 billion, fresh data shows.

A Central Bank of Kenya (CBK) sector report shows that micro, small and medium-sized enterprises (MSMEs), as they are popularly known, reduced their deposits by more than half from Sh27.5 billion held in microlenders in 2017.

The huge withdrawal of funds from microfinance banks reduced their share of total customer deposits from 75 percent in 2017 to 25 percent last year.

The drop in MSME deposits came as they increased their deposits in commercial banks by 11.5 percent to Sh653.6 billion in 2018 compared to Sh585.8 in 2017.

The shift is largely attributed to increased stability of commercial banks compared to the loss-making microfinance segment that has struggled in the last few years.

“Overall, more banks are now offering MSME differentiated products and service from those for their retail and corporate clients signalling the change of business model by institutions,” said CBK in its annual supervision report.

“Short-term credit facilities continue to be the most popular financing option for MSMEs. Overdrafts were the most preferred financing option for MSMEs within commercial banks.”

Despite the growth in deposits, banks reduced their MSME lending portfolio by Sh19 billion to close the year with a total of Sh393 billion lent to the firms.

This represents a paltry 15.8 percent of the total sector’s loan book.

The shrink in lending to small businesses had largely been blamed on the repealed rate capping law.

The cap cut private-sector loan growth because banks avoided lending to customers deemed as risky, including small businesses.By definition, MSMEs are categorised into micro (one-nine employees), small (10-49 employees) and medium (50-99 employees).They are estimated to contribute about to about 33 percent of the gross domestic product (Sh3 trillion out of the country’s output of Sh8.9 trillion in 2018).According to a 2016 survey by the Kenya National Bureau of Statistics, MSMEs at the time employed up to 18.9 million Kenyans. The majority of these workers were stationed at unlicensed firms with only four million working in licensed establishments.Also according to the report, the country had more than 1.56 million licensed MSMEs while 5.85 million were unlicensed.

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