Microfinance is a relatively young industry in Kenya, despite launching in the mid-1990s. Kenya has 14 registered Microfinance Institutions (MFI) which provide financial and non-financial support to nearly 8.5 million Micro, Small, and Medium-sized Enterprises (MSMEs) throughout the country.
According to Mr David Mukaru, CEO at Caritas Microfinance Bank, microfinance institutions in Kenya provide the full range of financial services including, deposits and savings, transactions and payment services, loans, and bancassurance services.
Speaking during the CEO CHAT hosted by the Kenya Bankers Association, Mr Mukaru said that the micro-lenders have embraced technology in order to provide the last mile financial services to small and medium-sized businesses. The MFIs work with their clients and the banking sector regulator to develop solutions for the underserved businesses.
According to Mr Mukaru, one of the biggest challenges in Kenya is the high level of informal businesses. 85% of the Micro, Small, and Medium-sized enterprises are informal, a factor that hinders their access to credit and other forms of assistance. “Only 14% of businesses in Kenya are formal micro enterprises,” noted Mr Mukaru.
Most businesses in the rural areas particularly in the agricultural sector do not keep proper records and largely operate informally. The Caritas Microfinance Bank CEO said that MFIs are working with small businesses to formalize their operations. The shift from informal to formal operations is expected to boost the businesses and transform Kenya’s economy into a higher income earning economy.