Kenya’s Sacco societies and microfinance institutions are giving commercial banks a run for their money – and it’s not hard to understand why.
Last week for instance, Barclays Plc announced intentions to sell off its African operations, citing lack of profitability and tough working environment as the main reasons for its planned exit.
The Kenyan subsidiary on Monday however, moved to suppress the mumbles saying its local operations will not be affected by the anticipated Africa exit of the holding parent company Barclays plc.
The bank is not the only commercial lender that is finding it hard to survive under the current market dynamics in which Saccos and microfinance institutions are fast and pushing commercial banks out of their turf – and they can’t do anything about it.
Several banks mostly West African tiers have found the going tough – forcing some to either re-strategize initial plans for the Kenyan market due to high losses incurred in the early years of operations or close shop altogether.
But it’s the growing number of Saccos, MFIs and the revised banking regulations that are seen to be threatening the existence and relevance of commercial banks due to their flexibility and institution-customer relationship they have with borrowers.
High interest rates asked by local banks have seen most borrowers flee to secure loans from alternative lenders – a move that is taking a beating on banks’ profits.
In recent years, the idea of giving small loans by these micro and credit institutions became the darling of most Kenyans who could not borrow under the conventional banking system because of the high interest charges.
The notion was hailed as the long elusive formula to propel even the most destitute into better lives who thronged Saccos and MFIs to seek loans – and it worked, albeit slowly – and banks failed to take notice of their growing influence that is today eating into their revenues and robbing them off customers.
Figures from Central Bank of Kenya (CBK) show there are twelve licensed deposit- taking microfinance banks (MFBs) two of whom were opened last year and several non-deposit taking institutions across the country – and growing, while the regulator cannot account for the number of non-deposit taking microfinance institutions across the country.
The regulator says the national treasury in the process of discussing the best way forward for regulating the non-deposit taking microfinance businesses.
There are more than 165 registered Saccos in the country, according to Sacco Societies Regulatory Authority (SASRA) as at December 2015, and the number is growing each day.
Saccos have a provision of a minimum core capital of Sh10 million compared to banks Sh1billion which has made it easy for their escalating numbers.
New requirements by the Treasury, Fitch ratings which requires banks to raise their core capital to Sh5billion from Sh1billion by December 2018, is further expected to disrupt the industry with small banks expected to find it difficult to raise the proposed capital and will most likely be absorbed by larger rivals or merge following.
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