Micro-lenders in Kenya are struggling to make a profit with the big institutions in the sector stuck in the loss-making territory, under-capitalised amid a shrinking market and increasing competition from the banking industry, analysis of statistics from the Central Bank reveals.

According to the Central Bank of Kenya’s Bank Supervision Annual Report 2025, microfinance banks (MFBs) posted a cumulative gross loss of KSh 2.9 billion for the year ended December 2025. 

While this represents a 17.4 percent improvement from a bigger KSh 3.5 billion loss suffered by firms in the sector in 2024, it is hardly a turnaround as only six micro-lenders reported profits, up from four the previous year. The other eight companies in the business continued to bleed.

During the year, the sector’s total assets contracted by 4.1 percent to KSh 55.5 billion, down from KSh57.9 billion in the previous year.

Loan uptake decreased by 6.1 percent to KSh 29.3 billion during the year under focus as lenders pulled back from lending to manage a tide of non-performing loans. 

Meanwhile, deposits from customers, which constitute the primary source of funding increased by just 4.9 percent to KSh 45.1 billion, while the loan book contracted to KSh 4.4 billion from KSh 5.7 billion.

Core capital decrease

CBK data shows that the sector’s core capital to total risk-weighted assets ratio collapsed sharply to 0.1 percent in 2025, from 6.0 percent in 2024. The total capital ratio fell to 1.1 percent from 7.0 percent. 

Both are far below the regulatory minimums of 10 percent and 12 percent, respectively. Five MFBs are now non-compliant with capital adequacy requirements.

The return on shareholders’ funds deteriorated from negative 78.2 percent in 2024 to negative 168.2 percent in 2025, implying that sector could be destroying shareholder value amid huge losses.

During the year, three of the largest microlenders including Kenya Women, Faulu and SMEP reported losses of KSh 2.2 billion, KSh 387 million and KSh 270 million, accounting for the bulk of the sector’s red print.

Total expenses declined by 10.6 percent to KSh 12.5 billion, driven by cost-cutting measures and easing interest rates. Staff costs fell by 19.1 percent while the interest on borrowings dipped by 42.5 percent, and interest on deposits by 5.9 percent. 

On market share, five large microlenders account for 88.2 percent of the market, while two small MFBs have a combined market share of negative 30.7 percent—a mathematical reflection of their negative equity.

The branch network expanded marginally, from 106 to 108 branches, while the agency network contracted sharply from 540 to 432 agents meaning that lenders are struggling to maintain their traditional reach even as they cut costs.

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