Time flies with great content! Renew in to keep enjoying all our premium content.
Prime
Microfinance banks post deposit growth after 3 years
The latest rebound marks a boost for microfinance banks, which had been forced to rely more on expensive borrowings from institutions such as banks to lend to customers.
Deposits held by microfinance banks have edged up for the first time in three years, signalling a tentative recovery for a sector that has been under pressure from tight economic conditions and competition from banks and digital lenders.
Central Bank of Kenya (CBK) data shows deposits rose by 5.3 percent to Sh44.15 billion in the year ended December 2025 from Sh41.92 billion the previous year.
The latest deposits held by the 14 deposit-taking microfinance banks regulated by the CBK mark a reversal of a prolonged decline that saw customer savings fall from Sh48.65 billion in 2021 to Sh44.12 billion the following year, and further to Sh42.62 billion in 2023.
The latest rebound marks a boost for microfinance banks, which had been forced to rely more on expensive borrowings from institutions such as banks to lend to customers.
Deposits are a key source of funding for lenders, with those able to grow such funds at a lower cost being best positioned to maintain healthy margins.
Industry players attribute the stabilisation to a mix of fresh capital inflows, digital transformation and product innovation aimed at regaining customer confidence and attracting new savers.
The Association of Microfinance Institutions Kenya (AMFI-K) chief executive, Caroline Karanja, said the sector has been repositioning itself to reverse the negative narrative that had defined it in recent years.
“What we are seeing is a lot of acquisitions and new investors coming in, which is changing the story of the sector. These investors are bringing in digital capabilities, which is a positive development for customers and institutions alike,” she said.
Recent transactions, including the acquisition of Sumac Microfinance Bank by Nigeria-based fintech firm Moniepoint, point to growing investor interest in the segment. Other microfinance banks that have attracted new investors include SMEP, Maisha, Key (now LOLC Kenya), Century, Choice and Uwezo.
Such deals have helped inject capital, strengthen governance and accelerate digitisation, all of which are key factors in rebuilding deposit growth.
Ms Karanja noted that most microfinance banks have also met the proposed minimum core capital requirement of Sh250 million, placing them on a stronger footing to compete and expand.
She added that beyond capital, lenders are increasingly diversifying their product offerings and adjusting pricing strategies to attract deposits in a highly competitive market.
“Our members have realised the need to diversify products and offer more competitive rates to customers. There is now more focus on what clients need and how to retain them,” she said.
At the same time, she said regulatory reforms, including enhanced oversight and licensing frameworks, have made the sector more attractive to strategic partners, including foreign investors and fintech firms seeking entry into Kenya’s financial services market.
However, Ms Karanja cautioned that the operating environment remains strained, reflecting broader economic challenges.
“The sector is still under pressure because the economy itself is constrained. There is limited liquidity, and that affects both savings and borrowing,” she added.
