Caroline Karanja CEO, AMFI-K

The Association of Microfinance Institution in Kenya (AMFI-K) in collaboration with Agusto & Co.  recently  launched  the semi – annual   report  of Kenya’s  microfinance  sector. The launch brought together key players in the  sector. Among other things, the  report highlighted the key role  that microfinance institutions (MFIs) and microfinance banks (MFBs) play in the  socio-economic  development of Kenya.

2023  saw more financial institutions participate in compiling  the  report  compared to  2022. AMFI-K collects data from members and in collaboration with Agusto & Co. prepares   an in-depth  report to stakeholders. Agusto & Co. is a leading pan African credit rating agency and business information provider that does research both at the macro and micro levels.

Some of the institutions present were: OikoCredit , Yehu Microfinance Trust, Vision Fund Kenya, Sumac Microfinance Bank, KWFT, Cherehani Africa, Platinum Credit Kenya, Ed Partners Africa , Sight Savers and Pan African Climate Justice Alliance.

Overview of the Report

The performance of  Kenya’s  microfinance sector remained resilient in the  2022 financial year  and the early half of 2023 despite economic slowdown. Nonetheless, there has been a rise in repayment defaults resulting in higher non-performing loans (NPL) ratios estimated at 32.9 percent for MFBs,  11.6 percent for  credit-only MFIs and 6.2 percent for wholesalers   as  at  the   end  of  June 2023. The sector continues to grapple with rising cost of operations due to a steady rise in  inflation as well as  increasing compliance cost.

Growing interest in Kenyan microfinance sector by foreign investors led to the acquisition of three out 14 MFBs. New developments in the sector include the operationalization of the Central Bank of Kenya (CBK) Digital Credit Providers (DCPs) Regulations  2022. They  required that all previously unregulated DCPs should  apply to CBK for a license within six months by mid-September 2023,  or cease operations. As of June 2023 only 32 applicants had been granted DCP licenses to operate, with  CBK acknowledging it had received over 400 applications since March 2022.

The licensing of digital credit providers is set to boost investor confidence and unlock new funding for credit-only microfinance institutions   which will enhance the regulatory landscape. In addition, it will offer greater clarity on oversight of credit-only microfinance institutions which are currently  grappling  with an  uncertain regulatory environment.


The report which has been deduced from data shared by AMFI-K members seeks to address pertinent issues in the sector . “As part of our ongoing commitment to fostering collaboration and transparency within the  sector,  AMFI-K   has been diligently collecting semiannual sector data in collaboration with Agusto & Co.,”  the Chief Executive Officer of AMFI-K, Caroline Karanja said in her opening remarks.  She attributed  the challenges facing   the sector  to the   hard economic  times prevailing  in  the country, occasioned by among  other  issues,  the weakening of the Kenyan shilling against the dollar.

Among  the   key issues addressed by the report are:  structure of MFIs and  MFBs, risks, opportunities, challenges, regulatory environment and financial conditions as well as current operating environment and developments in the sector.

On his part,  the chairman   of AMFI-K’s   board,  Mr.  Oscar Murigi noted that  the association   will continue to address the ever evolving needs of their members by collecting, analyzing and sharing data-driven insights to enhance  the growth of   the microfinance sector. “As AMFI-K we aim to continue releasing these  reports on half yearly basis. We hope the information coming out of this report is going to guide the relevant regulators and the  sector  at large in terms of bringing innovative solutions that address the needs of our customers.”

He further called on members to share their data for improved decision making for the sector. “In our dynamic sector,  information is not just power but it’s the basis of informed decision making. AMFI-K recognizes the crucial role that data plays in shaping the path of microfinance landscape,” he said.

“Through our thorough collection and analysis of the semi-annual data with our partner –  Agusto & Co. – we aim to provide robust, comprehensive overview of our  sector’s   performance , reflecting   the collective insights of our esteemed members,” he added.

Mr. Ikechukwu  Iheagwam, Regional Director, East Africa Agusto & Co. Limited

Snapshot review

The  seventy  six   page report is broken down into  nine   segments. The first segment covers the overview of the Kenyan microfinance  sector  from macro to micro approach, competition in the sector   and regulatory environment as  well as   the impact   of regulations to MFIs. The second segment highlights the financial performance of the  sector   from the standpoint of capital, liquidity, profitability and other key metrics.

The third segment looks at the key developments and new areas of interest like Environmental ,  Social and  Governance (ESG). “A number of micro finance institutions have begun to embed ESG criteria and considerations as well as ESG loans into their books, which means we are beginning to understand that climate change is real and microfinance can become the vehicle to accelerate and reduce our greenhouse emissions by the loans we give ,” observed Agusto’s East Africa’s regional head Ikechukwu Iheagwam.

The next segment looks at key success factors  –  the things that can be done MFIs to guarantee success in future. This  is  followed   by  a   segment  on  the   key risks that exist in the microfinance sector   and how institutions can avoid them in the long run. Technology efficiency, product and service diversification into niche areas like sustainability, dynamic-route-to-market options and access to low-cost capital were identified as success factors.

The report  has carried  out a  strengths, weaknesses, opportunities  and  threats ( SWOT)  analysis of the microfinance sector. Pricing remains a key factor in the competitive landscape along with the operating efficiency. With the ongoing DCP regime, MFIs have begun to reduce their lending rates ahead of potential regulatory oversight despite the rising cost of operation.

The key segment that distinguishes the report from others is the sector’s   risk rate. Agusto & Co. being a rating agency normally assesses   risk profiles and assigns  risk ratings.  Credit risk was identified as the primary risk faced by 63.9 percent of survey respondents.

“Business risks continue to be high, delinquencies are on the rise  and  there are still a few  challenges  in   governance ,” Ikechukwu  observed. Despite this, most MFIs and MFBs are coming up with  innovative products especially around  ESG. Kenya hosted the first Africa Climate Summit which positions the country in the forefront of sustainable energy revolution.   MFBs  and   MFIs stand to profit by tailoring products to address climate change issues.



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