As the liquidation of Charterhouse and Chase banks are approved by the Central Bank of Kenya (CBK), popular digital lender Branch has acquired a majority stake in one of Kenya’s smallest micro-finance banks (MFBs), Century.
The unprecedented acquisition whose approval was made public by the Competition Authority of Kenya (CAK) in a gazette notice on Friday, May 7, gives Branch 84.89% of the issued share capital in Century Microfinance Bank Limited.
If further approvals by the Capital Markets Authority (CMA) and the CBK are granted, Branch will have made history as the first digital lender to acquire a mainstream lender in Kenya.
The CAK requires the two lenders to maintain the terms agreed with borrowers with existing loans prior to the acquisition. Additionally, all existing performing and non-performing loans (NPLs) are to be retained as per their terms until expiry.
The acquisition gives Branch International Limited, headquartered in California (US), a stronger presence in the Kenyan financial sector while giving Century MFB much-needed lifeline in the wake of dwindling revenues occasioned by the Covid-19 pandemic. It also will allow Branch to offer its customers more products under regulation by the CBK.
The move comes at a time when Kenya is preparing to clamp down on a flood of high-interest loan apps characterised by predatory lending practices and lack of consumer data protection.
With over 10 million downloads on Play Store, Branch provides loans for periods ranging from 4 - 52 weeks, with an annual interest rate of between 22% and 229% of the loan amount.
If the Central Bank of Kenya (Amendment) Bill of 2020, that is before Parliament, is passed CBK’s licensing and supervisory powers will be extended to the hundreds of digital lenders in the country.
Currently, only commercial banks and microfinance banks (MFBs) are regulated by the CBK.
Since 2015, the 14 MFBs in the country have been on a loss-making streak due to in part, competition from digital lenders and high rates of loan defaults.
In the period ended June 2020, MFBs suffered a combined loss of Ksh1 billion as compared to Ksh0.7 billion in 2020 - CBK data show.
The largest MFBs include Kenya Women (KWFT), Rafiki and Faulu - the latter which announced the closure of four branches earlier this year.
Caritas, SMEP and Sumac are the three mid-sized MFBs while the smaller ones include Maisha, U&I, Choice, Key, Maisha, Daraja, Century and Muungano - the youngest of all.
Century was licensed by the CBK as a deposit-taking microfinance institution in September 2012 and since has over 26,000 clients. It specialises in micro, small and medium enterprises.
In December 2019, Century was ranked the third smallest MFB with an asset base of Ksh 336 million and a 0.4% market share.
Branch, which says it applies machine-learning to determine credit-worthiness of customers via their smartphones, was founded in 2015 and has branches in Mexico City, Mumbai, Lagos and Nairobi.
It is backed by the International Finance Corporation (the world bank’s financing arm) and Andreesen Horowitz, a private American venture capital firm among others.
Branch says it has given over Ksh35 billion in loans majorly to users in Africa - Nigeria, Tanzania and Kenya.