Listen to This Article Enhance your reading experience by listening to this article.

Global digital lender Branch International Ltd has officially jump-started its physical footprint in Kenya by acquiring majority stake in Century Microfinance Bank Limited (Century MFB).

The digital banking disruption of the banking industry is expected to improve credit access to small and medium-size enterprises (SMEs) who are often underserved by the commercial banks.

Previously a digital lender, Branch acquired 85 per cent stake to become the first digital bank in the region, targetting key markets once the local operation crystallises before the end of the year.

“The establishment of a true pan-African digital bank is long overdue, and at Branch International, we believe this will be a game-changer to deepen financial inclusivity while reaching the underserved markets,” Branch founder Matt Flannery said in Nairobi yesterday. 

He added: “The acquisition of Century Microfinance Bank here in Kenya, is a bold statement for Branch and demonstrates our commitment towards building a pan-African digital bank.”

Traditionally, it is banks which acquire digital lenders and not vice versa.Century MFB, which has been struggling financially with its three branches that Branch International intends to use to expand its customer base of more than four million.

The acquisition is expected to steer credit uptake in private sectors who have often been left out by traditional banks in favour of less-risky public sectors like government parastatals.

As of September 2021, private sector lending surged by only 7.7 per cent compared to public sector lending which surged by 25 per cent over a similar period, revealing how the tightened lending policies have shoved off most small businesses in need of financial aid. Having disbursed more than $600 million digitally, Branch now eyes to be a pan-African digital bank bringing new solution and investment to bridge the lending gap affecting SMEs.

“We have been lending to private customers but very little amount because of our license and credit policy. The licence that comes with this acquisition, will allow us to use the technology we have and credit models to increasing SMEs lending to about Sh150000 without collateral,” said Branch East Africa Managing Director Rose Muturi. 

Branch pioneered artificial intelligence applications to assess credit risk in markets with poor credit bureau infrastructure and continues to push technology to make financial services more efficient and scalable. The digital lender, however, downplayed the pre-empted disruption of the banking sector brought by fintech institutions eyeing acquisitions.

“We don’t set out to disrupt anything, we just follow our customers and try to serve them better. With technology, it enables us to do that in a way that most banks cannot do and hopefully we can set an example they can follow. We can improve the whole sector together. It is not a winner take it all market. There is still a lot of space for new innovation and others can joyfully come in,” Matt said.

Interest rate cap

The landmark transition of the digital lender comes barely three months after the Central Bank of Kenya (CBK) moved to regulate the sector following outcry over high interests rates, with some rising up to 520 per cent when annualised.

The new CBK Amendment Act 2021 puts digital lenders under the ambit of the regulator, subjecting them to interest rate cap that was introduced in September 2016 which slowed down credit uptake in private sector as commercial turned their back on many low-income borrowers and SMEs considered highly risky to loan.

Experts however contend that the new regulation which require acquisition of separate licensing, governance, and credit operations of digital lenders will not ease the cost of doing business for banks and Microfinance institutions in Kenya.