Microfinance Banks (MFBs) in Kenya are scaling down their dedicated innovation teams more than any other financial institutions, according to the latest Banking Sector Innovation Survey 2024 conducted by the Central Bank of Kenya (CBK). The reduction is being driven largely by the high cost of maintaining skilled innovation manpower.
The report, which surveyed 37 commercial banks, 1 mortgage finance institution, and 14 microfinance banks in February 2025, shows that the percentage of MFBs with dedicated innovation teams dropped sharply from 100% in 2023 to 57% in 2024. This dramatic fall accounted for the largest share of the overall decline across the sector, where the proportion of institutions with innovation teams slid from 87% in 2023 to 65% in 2024.
One of the most notable areas of cutbacks by MFBs was in climate change-related products, which dropped from 57% in 2023 to 36% in 2024. In contrast, commercial banks increased their participation in this area from 58% to 61%, highlighting a diverging trend in climate innovation focus.
Despite the cutbacks, innovation remains active in several key banking areas. The CBK report indicates that most institutions continued to introduce new products in credit, deposit mobilisation, capital-raising, payments, and settlement services. Nearly all surveyed institutions now offer mobile banking solutions, primarily used for customer service and operational support. However, credit processing remains the least digitised function across the industry.
In 2024, 79% of commercial banks and 79% of MFBs reported launching at least one innovative product. This compares to 87% of commercial banks and the same 79% of MFBs in 2023, indicating a slight dip for commercial lenders but stable performance by MFBs in product innovation.
A major highlight was seen in the market support services segment—such as customer authentication, KYC compliance, and consumer protection—where 50% of MFBs introduced innovations, up from 28% in 2023. However, commercial banks saw a decline, with only 26% innovating in this area in 2024, down from 39% the previous year.
According to CBK, this shift by MFBs reflects their increased emphasis on compliance with Know Your Customer (KYC) regulations and strengthening customer verification processes amid rising digital activity.
The survey also shows that investment management, custodial services, and bancassurance remain the least innovative areas, with only 11% of commercial banks and 14% of MFBs introducing new products in these segments.
On the risk side, cybersecurity was ranked among the top three risks associated with innovation by most institutions. For commercial banks, compliance risk was next in line, while MFBs ranked operational risks highly. A major change in this year’s survey is the downgrade of third-party management risk, which used to be the third most common concern. CBK attributes this shift to the growing importance of strategic and compliance risks as institutions expand their digital services and adopt more regulated processes.
On staffing, the average size of innovation teams accounts for about 25% of total personnel across banks and MFBs. Gender balance within these teams has also improved slightly: men make up 53%, while women now represent 47%, a modest improvement from 57% male and 43% female reported in the previous survey.
