At least half of Kenya’s 14 microfinance banks face pressure to raise an estimated Sh2.9 billion to meet newly proposed minimum core capital requirements by the Central Bank of Kenya(CBK), signalling a fresh wave of mergers and acquisition deals in the lending sub-sector.
The new Microfinance Bill 2026 proposes to raise the core capital floor for micro lenders to Sh250 million, up from Sh60 million. The micro-banks are expected to comply with the new capital requirements within five years after the government-sponsored Bill is passed in Parliament.
“The objective of this bill is to repeal and replace the Microfinance Act 2006, to address the evolving business of banking as well as the institutions offering microfinance banking services,” reads the memorandum accompanying the Microfinance Bill of 2026.
“The Bill therefore seeks to provide a safe and sound environment for the Microfinance Banks to meet the evolving needs of the consumers they serve. This is in line with Section 4(2) of the Central Bank of Kenya (CBK) Act, which mandates CBK to foster the liquidity, solvency and proper functioning of a stable market-based financial system.”
Capital push
The higher capital threshold is expected to trigger a new wave of acquisition deals, especially by social-impact investors.
“Acquisitions are one of the methodologies to not only increase core capital but also improve the performance of micro-finance institutions,” Carol Karanja, the chief executive officer of the Association of Microfinance Institutions (AMFI), told Business Daily.
The sector has been the subject of mergers and acquisitions recently, with the transactions being set to remain prominent as players chase the new core capital threshold, with the deadline likely to be set at the end of 2031.
Salaam African Bank (SAB) from Djibouti acquired the entire stake held in Uwezo Microfinance Bank in March 2021, triggering a wave of acquisitions for the sector.
Since then, UK-based Wakanda Network Limited acquired an 85 percent stake in Choice Microfinance Bank Limited (October 2021) while Branch International Limited acquired an 84.89 percent shareholding in Century Microfinance Bank Limited in February 2022.
LOLC Mauritius Holdings Limited also closed its acquisition of a 73 percent stake in Key Microfinance Bank in February 2022.
In July 2022, US-based fintech company UMBA Inc. announced the acquisition of a 66.06 percent shareholding in Daraja Microfinance Bank, while in May of 2023, Cactus Cantina Investments Limited acquired a 55.8 percent stake in Maisha Microfinance Bank.
US-based Hope Advancement Inc. rounded off 2023 by taking a 51 percent shareholding in SMEP Microfinance Bank Plc.
The merger and acquisition trend in the sector has emerged again with Nigerian fintech company Moniepoint recently taking a 78 percent stake in Sumac Microfinance Bank.
CBK expected the acquisitions to strengthen the micro banks through injection of additional capital to fund business expansion, upgrade information technology infrastructure and bolster governance.
The industry has welcomed the higher capital push, acknowledging the need for stronger funding buffers even as they highlight other reforms to improve the operations of MFBs and boost profitability.
“Members have endorsed the higher core capital requirement and have no issues scaling it,” Ms Karanja said.
AMFI notes 11 reforms could help boost the operations of microbanks and their profitability, including increasing single borrower limits and cutting the number of management executives in boards.
Other remedies proposed include revising MFBs’ cash-reserve ratio downwards from the current 4.25 percent and reviewing the period for classification of non-performing loans (NPLs) from 30 to at least 60 days.
Funding gaps
Records show that as of December 31, 2024, the number of licensed microfinance banks held steady at 14, but the overall financial position weakened from 2023 with notable decreases in net advances and borrowings.
The Kenya Women Microfinance Bank faced the highest funding gap as of December 2024, based on its negative working capital of Sh1.5 billion, followed by Maisha Microfinance Bank (now renamed On It Microfinance Bank), which had a negative Sh179 million core capital in the same period.
The pair would require Sh1.7 billion and Sh429 million to meet the new minimum core capital rules.
Daraja Microfinance Bank also had a negative core capital of Sh132 million during the same period.
