EXPLAINER: Why Microfinance Banks in Kenya Are Recording Billions In Loss
A new analysis shows that microfinance banks (MFBs) have experienced significant performance declines, resulting in billions of dollars in losses.
The analysis, which is part of the Kenya Banking Sector: Performance and Regulatory Reforms 2024, indicated that MFBs sustained significant losses in 2024.
This has raised questions about the future of the once-critical industry in Kenya’s financial landscape.
According to the study, MFBs jointly incurred a loss of Ksh3.5 billion before tax in the fiscal year ended December 31, 2024, a significant rise from Ksh2.4 billion the previous year.
Only four of the 14 regulated microfinance institutions made a profit, with the remaining ten falling further into the dreaded red zone.
The research also highlighted an interesting dynamic: three institutions accounted for the majority of the MFB sector’s losses, with a combined pre-tax loss of more than Ksh2.7 billion.
MFBs’ poor performance has been mostly attributable to a 12.1 percent loss in total income, which was primarily caused by a 16% reduction in net lending.
CBK has finally released the 2024 Banking Sector Supervision Annual Report, nearly eight months after the close of the financial year.
— Mwango Capital (@MwangoCapital) August 11, 2025
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Net loans declined from Ksh37.5 billion in 2023 to Ksh31.2 billion in 2024, highlighting the vulnerability of the microfinance sector.
Because fewer loans were given, interest income fell by 12.3 percent, further reducing profitability in the business, which is primarily reliant on credit-based revenue.
The decline in lending activity is partly linked to funding difficulties, which forced MFBs to scale back their core operations. Return on assets also fell from -4% to -6%.
Return on equity nearly doubled in the negative, from -35% to -78%, demonstrating the growing losses for shareholders as well as the failure to create value.
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For ordinary Kenyans, the declining trajectory of MFBs is concerning because reduced lending from the institutions effectively limits access to credit while also jeopardizing MFBs’ long-term viability.
According to the same report, digital credit providers (DCPs), which operate mostly through mobile platforms, are rapidly rising as microfinance banks struggle.
The number of licensed DCPs more than doubled in 2024, from 32 to 85, as a result of regulatory amendments that brought them under CBK control.
Gross loans issued by DCPs increased by 91%, from Ksh28.9 billion in 2023 to Ksh55.2 billion in 2024, while the number of individual loans increased dramatically to 3.9 million by the end of the year.
EXPLAINER: Why Microfinance Banks in Kenya Are Recording Billions In Loss
