Micro lenders deposits drop by Sh200m as competition rises

Money Markets

Banks have come out strongly to fight for large depositors as lenders rely on savings to grow their loan books. PHOTO | FILE 

By GEORGE NGIGI

In Summary

• Microfinance banks were holding deposits of Sh32.5 billion in March down from Sh32.7 billion in December on stiff competition from banks for corporate deposits.

Deposits held by microfinance banks (MFBs) shrunk by Sh200 million in the three months between December and March, data from the Central Bank of Kenya shows.

The micro-lenders were holding deposits of Sh32.5 billion in March down from Sh32.7 billion in December, a situation attributed to competition from banks for corporate deposits.

Opening of 56,151 new deposit accounts by the MFBs that raised the total savings accounts to 2,310,742 did not increase industry savings, indicating the new accounts were mainly for small savers.

“One of the top firms must have lost wholesale deposits. Competition for savings is very high,” said a senior manager in a microfinance bank who did not wish to be identified.
There are 10 microfinance banks, previously referred to as deposit-taking microfinance institutions. The sector is dominated by Faulu and KWFT who enjoy an 80 per cent market share.

KWFT though said it had recorded deposit growth in the said period to Sh18.9 billion from Sh17.2 billion in December.

“Ours did not fall. We have increased our outreach and last year’s performance was good so general confidence has grown,” said KWFT’s managing director Mwangi Githaiga.

Attempts to contact Faulu Kenya, which controls an estimated 27 per cent of the market, were not successful.

Faulu Kenya, which received capital injection last year following acquisition by Old Mutual, has been aggressive in mobilising deposits by advertising their high savings return.

READ: Old Mutual acquires 67pc of Faulu Kenya

Tight liquidity in the money markets owing to mopping up of cash by Central Bank in attempts to support the depreciating shilling has fuelled competition for large deposits. Banks are able to woo depositors more owing to their financial muscle and history.

Bank deposits grew by 3.4 per cent over the same three months to Sh2.4 trillion from Sh2.33 trillion in December.

The long-term borrowings by the MFBs decreased from Sh6.9 billion in December 2014 to Sh4.9 billion in March, signalling increased reliance on deposits as a source of customer loans.

The micro-lenders were able to lend more with their total loan book expanding by two per cent to Sh40.8 billion.

The number of loan accounts opened by the MFBs, however, dropped by 17,114 to 440,517.

“Reduction in loans accounts was due to introduction of new products that necessitated merging of some existing loan accounts,” said CBK in its quarterly report.