Digital lenders stall loans by micro-finance banks

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What you need to know:

  • A CBK report shows annual growth in gross loans by MFBs shrank further by 7.3 per cent in December 2021 from negative growth of 1.2 per cent in December 2020.
  • Two MFBs recorded profits of Sh17 million each, one reported Sh36 million in profits and one MFB recorded a Sh131 million growth in profit.
  • Losses for the remaining 10 MFBs ranged from Sh8 million to Sh522 million.


Lending by micro-finance banks (MFBs) has stalled due to competition from robust digital lenders, a new report by the Central Bank of Kenya (CBK) said, pointing to shifts in the low market segment.

A CBK report shows annual growth in gross loans by MFBs shrank further by 7.3 per cent in December 2021 from negative growth of 1.2 per cent in December 2020—indicating low uptake of loans or disbursements.

“The sector faces competition from other credit providers, especially digital credit providers as well as funding challenges that limit their capacity to lend,” the regulator said.

The impact of suppressed loan disbursement by MFBs reflects in their financial performance with their total assets declining by 1.2 per cent, from Sh74.9 billion in December 2020 to Sh74 billion in December 2021, mainly on account of a 9.2 per cent decline in net loans and advances.

Only four out of 14 MFBs reported profits last year, although the overall pre-tax loss in the sector improved to Sh877 million in December 2021 from Sh2.2 billion in December 2020.

Credit risk

Two MFBs recorded profits of Sh17 million each, one reported Sh36 million in profits and one MFB recorded a Sh131 million growth in profit.

Losses for the remaining 10 MFBs ranged from Sh8 million to Sh522 million.

“Despite the decline in losses, the viability of MFBs declined due to slow growth in loans and profitability,” the regulator said.

Credit risk remains elevated for MFBs, with gross non-performing loans (NPLs) rising by three per cent to Sh13.8 billion in December 2021 from Sh13.4 billion, in December 2020, CBK said.

MFBs face limited funding scope of their loans and advances with declining external borrowing amid stagnating growth in customer deposits. Customer deposits recovered in 2018 but stagnated between 2020 and 2021. Borrowing from other sources has declined since 2018 to below Sh10 billion in 2021.

“This may explain the slow growth in the loans and advances,” Central Bank said.

The capital and liquidity levels for MFBs, however, rose in 2021 compared to 2020, lifted by capital injection by some players.

Capital injection

“Increased level of overall capital followed capital injection by shareholders of Faulu, Rafiki, and Uwezo to the tune of Sh1.1 billion, Sh500 million and Sh300 million, respectively. Consequently, core capital to total risk-weighted assets increased to 13 per cent in 2021 from 10 per cent in 2020 while total capital to total risk-weighted assets ratio increased to 16.3 per cent from 13 per cent, during the period” the regulator said.

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