Kenya’s microfinance banking sector is bracing for a fresh wave of mergers and acquisitions after proposed legislation raised the minimum core capital requirement for lenders, leaving at least half of the country’s 14 microfinance banks needing an estimated Sh2.9 billion to comply.
The proposed Microfinance Bill 2026 seeks to increase the minimum core capital threshold from Sh60 million to Sh250 million. Institutions will have five years to meet the new requirement once the legislation receives parliamentary approval.
According to the Bill’s memorandum, the reforms are intended to modernise the regulatory framework governing microfinance banks and ensure they remain resilient amid changes in the financial services landscape.
The proposed law aims to create a stronger and more stable operating environment for microfinance lenders while aligning with the Central Bank of Kenya’s mandate to promote liquidity, solvency and the sound functioning of the financial system.
Industry players expect the higher capital requirement to accelerate consolidation across the sector, particularly through acquisitions by strategic and impact-focused investors.
Carol Karanja, Chief Executive Officer of the Association of Microfinance Institutions (AMFI), said mergers and acquisitions offer a practical avenue for institutions seeking to strengthen their capital base while improving operational performance.
Kenya’s microfinance sector has already witnessed a series of acquisitions in recent years. In 2021, Djibouti-based Salaam African Bank acquired Uwezo Microfinance Bank, setting off a trend that saw several foreign investors enter the market.
Subsequent transactions included Wakanda Network’s purchase of an 85 percent stake in Choice Microfinance Bank, Branch International’s acquisition of nearly 85 percent of Century Microfinance Bank, and LOLC Mauritius Holdings’ takeover of a majority stake in Key Microfinance Bank.
Other notable deals included US fintech firm UMBA’s acquisition of Daraja Microfinance Bank, Cactus Cantina Investments’ purchase of a controlling stake in Maisha Microfinance Bank, and Hope Advancement Inc.’s investment in SMEP Microfinance Bank. More recently, Nigerian fintech company Moniepoint acquired a 78 percent stake in Sumac Microfinance Bank.
The Central Bank has previously indicated that such transactions help strengthen institutions through fresh capital injections, technology upgrades and improved governance structures.
While the industry supports the proposed increase in capital requirements, stakeholders are also advocating additional reforms to improve profitability and operational efficiency.
Among the recommendations put forward by AMFI are increasing single-borrower limits, reducing the number of management representatives required on boards, lowering the cash reserve ratio from the current 4.25 percent and extending the period before non-performing loans are classified from 30 days to at least 60 days.
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Financial data shows that although the number of licensed microfinance banks remained unchanged at 14 as of December 2024, the sector’s overall financial position weakened compared to the previous year, with declines recorded in lending and borrowing activities.
The largest capital shortfall was recorded by Kenya Women Microfinance Bank, which had negative working capital of Sh1.5 billion. To comply with the proposed rules, the institution would need approximately Sh1.7 billion in additional core capital.
Maisha Microfinance Bank, now operating as On It Microfinance Bank, posted a negative core capital position of Sh179 million and would require about Sh429 million to meet the new threshold. Daraja Microfinance Bank also reported a negative core capital position of Sh132 million, underscoring the scale of the challenge facing several players in the sector.
