Kenya’s microfinance banking sector remains under pressure, with eight of the country’s 14 licensed microfinance banks (MFBs) recording losses in 2025, even as six institutions returned to profitability.
According to the Central Bank of Kenya (CBK) Bank Supervision Annual Report 2025, the sector posted a combined pre-tax loss of KSh2.916 billion in 2025, an improvement of 17.4 per cent from the KSh3.531 billion loss recorded in 2024. The number of profitable MFBs increased from four in 2024 to six in 2025.
The six institutions that reported pre-tax profits were Caritas Microfinance Bank (KSh69 million), Sumac Microfinance Bank (KSh5 million), U & I Microfinance Bank (KSh5 million), Salaam Microfinance Bank (KSh96 million), Branch Microfinance Bank (KSh100 million), and Muungano Microfinance Bank (KSh4 million). The figures are based on CBK’s reported 2025 profit-and-loss accounts.
On the other hand, Kenya Women Microfinance Bank (KWFT) posted the sector’s largest loss at KSh2.145 billion, followed by Faulu Microfinance Bank at KSh387 million, SMEP Microfinance Bank at KSh258 million, Rafiki Microfinance Bank at KSh147 million, On It Microfinance Bank at KSh124 million and Umba Microfinance Bank at KSh6 million. The CBK accounts also show losses of KSh17 million for LOLC Microfinance Bank and KSh17 million for the remaining loss-making institution, bringing the sector total to KSh2.916 billion.
Cost control offers some relief
The improvement in the sector’s overall performance was largely driven by lower operating expenses. CBK reported that MFB expenses fell by 10.6 per cent, from KSh14.8 billion in 2024 to KSh12.5 billion in 2025.
Staff costs declined by KSh841 million, or 19.1 per cent, while interest and fees on borrowings fell by KSh519 million, equivalent to 42.5 per cent. Interest and fees on deposits also declined by KSh223 million. CBK attributed the improvement to cost-rationalisation measures implemented by MFBs and easing interest rates.
However, the sector’s underlying financial position remains challenging. Total MFB assets declined by 4.1 per cent to KSh55.5 billion, while net advances fell from KSh31.18 billion in 2024 to KSh29.29 billion in 2025. Customer deposits, meanwhile, increased by 4.9 per cent to KSh45.1 billion.
Capital remains a major concern
The profitability challenge has also translated into pressure on MFB capital. CBK reported that the sector’s core capital to total risk-weighted assets ratio fell to 0.1 per cent, while total capital to total risk-weighted assets stood at 1.1 per cent, both below the regulatory minimums of 10 per cent and 12 per cent respectively.
Five MFBs were non-compliant with capital adequacy requirements at the end of 2025. The sector’s liquidity ratio, however, stood at 44.4 per cent, above the statutory minimum of 20 per cent, although two institutions did not meet the liquidity requirement.
The deterioration in shareholders’ funds is particularly notable. CBK reported that return on shareholders’ funds declined from negative 78.2 per cent in 2024 to negative 168.2 per cent in 2025, reflecting the erosion of shareholders’ funds by sector-wide losses.
Regulation enters a new phase
The sector is also operating against a changing regulatory landscape. The Microfinance Bill, 2026, introduced in the National Assembly in May, proposes to repeal and replace the Microfinance Act, 2006. Among its proposals are stronger licensing requirements, enhanced CBK oversight, minimum capital requirements, liquidity and risk-management provisions, stronger corporate governance and additional consumer-protection measures.
The regulatory framework was further updated in September 2026, when CBK published the Microfinance (Deposit-Taking Microfinance Institutions) Regulations on 23 September.
For MFBs, the combination of tighter supervision, capital requirements, changing customer behaviour and competition from commercial banks and digital credit providers is likely to keep efficiency and sustainable lending at the centre of the sector’s agenda.
The 2025 figures therefore present a divided industry: while six institutions managed to remain profitable, the majority continued to struggle with losses and capital pressures. The performance gap highlights the importance of cost management, asset quality, sustainable lending models and adequate capital as Kenya’s microfinance industry enters a new regulatory era.
