Struggling microfinance bank gets new majority shareholder

Amb.Ukur Yatani Cabinet Secretary The National Treasury and Ministry Of Planning. [Wilberforce Okwiri, Standard]

A British firm has acquired a majority stake in diaspora-backed Choice Microfinance Bank that has been in losses since 2015.

The National Treasury has cleared Wakanda Network Ltd—a private limited company that was incorporated in London in February last year— to take up the stake.

The Microfinance Act, 2006 does not allow a single person or institution to hold more than 25 per cent stake in a microfinance firm but as a new shareholder, Wakanda has been given an exemption for four years through a special gazette notice.

“The CS for the National Treasury exempts Wakanda Network Ltd from the provisions of section 19 (1) of the Microfinance Act, 2006 for a period of four years, with effect from January 1, 2022,” said Treasury CS Ukur Yatani.

This means Wakanda will have up to the end of 2026 to cut down its direct or indirect holding of ordinary shares in Choice Microfinance to below a quarter.

It was not immediately clear the exact stake that Wakanda has acquired in the struggling firm and the money it will pay to the existing shareholders.

Choice’s move mirrors that of SMEP and Remu who also announced a search for strategic investors amid losses and thinning capital.  

Choice shareholders had in June 2019 endorsed the sale of a majority stake to a strategic investor to revive the fortunes of a lender that has been in losses since its licensing in May 2015.

Shareholders had agreed to allot additional ordinary shares to a strategic investor—then unnamed— who Choice’s management said had indicated interest in acquiring majority shares in the company.

Choice Microfinance reported a Sh26 million net loss in the financial year ended December 2020.

It had Sh98 million customer deposits, Sh54 million assets, Sh6 million loan book and Sh5 million borrowings in the review period.

The 14 microfinance banks licensed by Central Bank of Kenya have been struggling in the market, with their pre-tax losses more than doubling from Sh1 billion to Sh2.4 billion in the twelve months ended June 2021.

Microfinance banks last posted a profit in 2015 when their combined pre-tax earnings to June 2015 were Sh489 million.

Once seen as an attractive stop for borrowers seeking small loans and savers chasing high returns, micro-financiers are now on the edge.

They are losing customers and deposits are not coming in as much as before.