A microfinance institution have raised alarm over the continued merger and consolidation of smaller banks due to the tough operating environment saying trend disadvantaged small lenders.
Muturi Kamande, Chairman Board of Directors of the U &I Microfinance Bank said despite mergers being a solution to manage expenses and operating costs for many financial institutions, only big banks stand to benefit.
Speaking when the Microfinance opened its fourth branch in Thika town on Friday, Kamande said merging creates monopoliesin the banking industry, ushering in a few banks with strong financial muscle in the process creating unfair competition.
He proposed that providing banks with the necessary supportive regulations like reducing the interest rate cap would not only be beneficial to the microfinance firms but also to the customers.
The U & I chairman called on the government to allow more banks to operate, adding that it would create innovations, ease accessibility thus benefitting the customer.
“We don’t want a situation where the country has only three major banks, when micro-lenders are closing down. The country needs to have many banks competing. This will create innovations, access to financial services, and the customer will stand to benefit,” he said.
In 2016, the government enacted the interest rate cap and a core capital that banks should have, making many to struggle financially due to reduced profit margins.
Treasury has also insisted that the country is overbanked and reiterated the need for the industry to be regulated.
Kamande said opening a branch in Thika aims to capture the business and agriculture pool in the vibrant and industrial town as well as increase their customer base from 4,000 to over 10,000 in the coming years.
The micro-lender has a Sh500million asset base and targets to reach about Sh800million this year. It has four branches and is on an expansion programme to increase the number.
By Muoki Charles