Companies
US entity buys majority stake in SMEP Microfinance for Sh586 million
Tuesday February 21 2023
A SMEP branch in Nairobi. FILE PHOTO | NMG
A US faith-based nonprofit organisation is set to acquire a majority stake in SMEP Microfinance Bank for $4.65 million (Sh586.12 million), deepening acquisitions in Kenya’s microfinancing sector.
SMEP shareholders last month, in an extraordinary general meeting, passed a resolution to sell a 51 percent stake to Hope International, a Christian institution, pending regulatory approval.
The lender has faced capital and liquidity challenges for over a decade, making it difficult to invest in new business models to meet the changing customer preferences. The deal, therefore, presents an opportunity to unlock growth.
“The search for a strategic investor has been a long and painstaking journey as we have been looking for investors aligned to our mission with a long-term perspective in terms of SMEP’s growth and development as opposed to the short-term growth by many equity investors, which results in mission drift,” said Nelson Kuria, SMEP chairperson.
Read: SMEP seeking nod to search for investor as losses mount
“This is a defining moment as it heralds a new dawn with heightened impetus in the transformation journey to make SMEP a better and true Christian finance institution with real impact in line with our mission of enhancing inclusion and transforming the lives of millions of Kenyans in the low-income sector of the population.”
NCCK stake
SMEP’s deal brings to six of the 14 Central Bank of Kenya (CBK) regulated microfinance lenders that will have been acquired. The others that have been acquired or are in the process of acquisition are Maisha, Key (formerly Remu), Century, Choice and Uwezo.
SMEP was founded by the National Council of Churches of Kenya (NCCK) in 1975 and received a deposit-taking microfinance licence from the CBK in 2010.
The NCCK has been shedding off shares to attain the 25 percent threshold required under CBK regulations.
The latest deal will see NCCK’s majority stake diluted from 71.1 percent to 34.8 per cent, while the minority shareholders’ stake will drop to 14.2 percent from 28.9 percent.
Shareholders had in 2021 approved the creation of new shares to allow for the onboarding of a strategic investor to help the lender increase its core capital, expand the branch network and increase the loan book.
Mr Kuria noted that the journey of capital raising had taken 12 years, starting with the restricted public offer in 2012 to 2013, to private placements and additional drives to new and existing shareholders consisting of churches and members of the public in 2013.
The capital raising moves saw the dilution of NCCK to the current 71.1 per cent shareholding from the initial 100 percent stake.
CBK regulations
SMEP has about 40 branches and offers a variety of financial products and insurance.
Its ownership consists of over 15,700 shareholders, with NCCK holding the majority stake.
The microfinancier, which started as a social support arm of the NCCK to assist the society’s vulnerable, has since 2010 been exploring different ways of raising additional capital to place it on a growth path.
The Microfinance Act, 2006 does not allow a single person or institution to hold more than a 25 percent stake in a microfinance firm, but Treasury has been granting extensions.
CBK had given the micro-lender four years after licensing to ensure compliance with the requirement to cut the majority stake to below 25 percent. This has been extended three times, with the last and final extension expiring in December this year.
Hope International president and CEO Peter Greer welcomed the opportunity to invest in SMEP, saying it would allow the US-based entity to offer benefits such as technical expertise and strategic leadership.
“This investment agreement, which is still subject to regulatory approval, will allow both SMEP and HOPE to deliver well on our shared mission to reach more families with Christ-centered financial services and the hope of the Gospel,” said Mr Greer.
Hope International operates in over 20 countries, and SMEP is betting on its strategy as a long-term investor who ploughs back dividends into the business. The deal will see Hope International gain five board seats.
