Kenya’s 14 microfinance banks (MFBs) have endured one of the toughest decades in the financial sector, with industry data from 2014 to 2024 revealing sustained decline across key indicators, as profitability has collapsed and balance sheets shrunk.

“The MFB subsector is highly concentrated. Three of the 14 MFBs account for 87.5 percent of total losses and only three of the recorded profits in 2024,” Central Bank of Kenya (CBK) says in the latest Financial Sector Stability Report.

“Investors evaluate MFBs as risky due to their subdued performance, increase in competition and loss of deposit. The financial sector has also attracted new entrants such FinTech, telecommunication firms, Government, non- Governmental organisation and development finance institutions in the niche market for MFBs. This has brought competition to MFBs, driving them into losses,” the CBK added.

Profitability has been absent for nearly a decade. After small gains in 2014 and 2015, MFBs have posted nine straight years of losses. In 2024, the subsector recorded a combined loss before tax of KSh 3.5Bn, up from KSh 2.4Bn in 2023. KWFT, Faulu, and SMEP accounted for 88% of the losses, while only Caritas, Choice, and Sumac posted small profits. Return on assets fell to -6.1% in 2024, while return on equity deteriorated further to -78.2%.

Shareholders’ funds, which stood at over KSh 11.6Bn in 2015, have more than halved to KSh 4.5Bn in 2024, reflecting continued erosion of capital buffers.

CBK highlights that the sector requires a significant shift in business models. A pivot toward digital platforms, tailored products, and niche segments is necessary, but most MFBs lack the capital to invest in such transformation. Consolidation is presented as a viable path: mergers among MFBs or acquisitions by banks could provide stronger capital and deposit bases to buffer against shocks.