Time flies with great content! Renew in to keep enjoying all our premium content.
Prime
Micro-lenders seek longer loan default threshold
Amfi-K data shows that the micro-lenders closed March this year with an NPLs ratio—a share of loans for which interest has not been received for at least 30 days—at 14 percent.
Micro-finance lenders want a longer threshold of three months before disbursed loans can be declared as non-performing, to ease repayment pressure on borrowers and shield the sector from elevated provisioning costs that erode profitability.
The Association of Microfinance Institutions of Kenya (Amfi-K), which comprises 91 entities, says that the current rule requiring loans to be classified as in default after just a month forces them to pile more pressure on borrowers, unlike banks that enjoy a three-month window.
They said in a forum on Wednesday their loan book closed March 2026 at Sh40.46 billion, marking a growth from Sh34.5 billion at the end of December 2025. They believe relaxing the rules for booking defaults can incentivise lending and borrowing.
“It is a major problem. Once you provide at 30 days, it is treated as a loss and hits revenue immediately. We have to spend more on recovery because officers must follow up with customers almost daily to avoid crossing the 30-day mark. That creates a lot of pressure on customers,” said Simon Kamore, vice chairman at Amfi-K, in an interview.
Collateral for microfinance lenders is mostly social—group guarantees or household items, which are not considered in provisioning, unlike for banks, which rely on physical assets like land and vehicles when issuing loans.
Wangaruro Mbira, chairman at Amfi-K, said a change to the current regulations will help correct the issues that have stood in the way of microfinance institutions’ growth.
“There are many pockets of regulation that are not speaking to each other, and that is part of the challenge. We need a more coherent and responsive regulatory framework that creates a level playing field,” said Mr Mbira.
Amfi-K data shows that the micro-lenders closed March this year with an NPLs ratio—a share of loans for which interest has not been received for at least 30 days—at 14 percent.
They say the ratio would fall to below five percent if they apply the three-month window, as is the case with the banking sector, whose default rate stood at 15.6 percent over the same period.
The association says the 30-day window for loan collection has also hurt profitability of its members since interest accruing on NPLs is booked as suspended interest, leading to higher provisioning.
David Mukaru, CEO at Caritas Micro-finance Bank, said a different set of rules on NPLs “creates confusion and an uneven playing field,” disadvantaging micro-lenders and their borrowers.
“A microfinance bank will flag the loan as non-performing much earlier, while a bank will still consider it performing. The economy is affecting everyone equally, so there needs to be fairness in rules,” he said.
A higher loan loss provisioning increases their operating costs, cutting profits while piling pressure on their capital. In addition, it increases the amount booked as suspended interest, which the Kenya Revenue Authority still factors in when taxing them.
Microfinanciers’ loan book is concentrated in agriculture, trade, education, health, and transport, with loan sizes averaging Sh100,000. Debt accounts for 66 percent to 80 percent of the total funding, while equity is between 20 percent and 34 percent.
“We largely rely on debt to fund our operations, often borrowing from commercial banks to lend onward. This compounds our cost of capital because we start from where commercial banks end,” said Mr Mbira.
