Wakanda buyout signals bright future for microfinance banks in Kenya
As mobile digital lenders took Kenya by storm in recent years, microfinance banks were ruffled but the tide is now turning with the former seeking to turn their enterprises into micro lenders.
Wakanda Network Limited, which is owned by Chinese entrepreneur Duan Wei, has bought an 85 percent stake in the Kajiado-based Choice Microfinance.
Choice, which was licensed in 2015, has its head office and one branch both located in Ongata Rongai, Kajiado County.
It is categorized as a small microfinance bank with a market share of below one percent of the microfinance banking sector as of October 31, this year.
The buyout follows the announcement by San Francisco-based Branch International which bought an 84.89 percent stake in Century Microfinance.
The digital lenders are targeting microfinance banks ahead of new CBK regulations on digital lenders that are set to throw a wrench into the unregulated mobile lending business.
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At the moment, there are 14 Microfinance Banks (MFBs) that operate in the regulated space but have been on a loss-making streak since 2015 suffering from high default rates and competition from digital lenders.
Kenya has three large MFB’s including Kenya Women, Faulu, and Rafiki, three mid-sized including Caritas, Sumac, and SMEP and smaller ones such as Key, Uwezo, Maisha, Century, U&I, Daraja, and Choice. Muungano, which is the latest in the industry, was registered in October, last year.
The microfinance banks have been facing challenges including the increased credit risk which has contributed to increasing the number of non-performing loans, reduced reliance on deposits, and their huge reliance on more expensive borrowed funds.
They took a heavy hit on the interest rates cap especially since such lenders had previously leveraged on high-interest rates to make up for their often risky portfolios.
