Microfinance Banks Assets Shrink
Kenya’s microfinance banking sector contracted in 2025, with total assets falling 4.1 percent as institutions scaled back lending in a bid to manage bad loans and fend off growing competition from other credit providers, according to the Central Bank of Kenya’s (CBK) latest Bank Supervision Annual Report.
The number of licensed microfinance banks held steady at 14 as of December 31, 2025, one holding a community microfinance bank license and 13 licensed to operate nationwide. Despite the stable count, the sector’s combined balance sheet shrank, with total assets falling to Ksh.55.5 billion from Ksh.57.9 billion in 2024.
Lending remains the core business for microfinance banks, with net loans making up 53 percent of total assets. But the loan book itself contracted sharply, with net advances dropping 6.1 percent to Ksh.29.3 billion, down from Ksh.31.2 billion the previous year.
The CBK attributed the pullback to a deliberate strategy by lenders to rein in non-performing loans, alongside loan sales to other financial institutions and mounting competitive pressure in the credit market.
Borrowing Falls
Even as lending contracted, customer deposits grew 4.9 percent, climbing to Ksh.45.1 billion from Ksh.43.0 billion in 2024. Deposits and borrowings remained the sector’s main funding sources, accounting for 81 percent and 8 percent of total funding, respectively.
Borrowings, however, fell significantly, from Ksh.5.72 billion (10 percent of total liabilities and equity) in 2024 to Ksh.4.41 billion (8 percent) in 2025, a shift the CBK said points to microfinance banks relying less on external borrowing to fund their operations.
The CBK ranks microfinance banks using a weighted composite index built on five indicators: assets, deposits, shareholders’ funds, active deposit accounts, and active loan accounts. Institutions are then classified as large (5 percent market share or above), medium (1–5 percent) or small (under 1 percent).
By this measure, the sector remains highly concentrated. Five large microfinance banks controlled a combined 88.2 percent market share as of December 2025, while seven medium-sized institutions held 14.7 percent. Two small microfinance banks recorded a combined market share of negative 30.7 percent, reflecting weak or negative performance on the underlying index components relative to peers.
