Microfinance banks (MFBs) are leading in the overall reduction of dedicated innovation teams among banking institutions, a new survey by the Central Bank of Kenya (CBK) shows.
- •The survey shows that the there was a significant decrease of such teams within MFBs, from 100% of respondents in 2023 to 57% in 2024 “due to the cost of maintaining manpower.”
- •The sector accounted for the most significant proportion of the overall drop from 87% of respondents in the 2023 survey to 65% in the latest one.
- •The CBK surveyed 37 commercial banks, 1 mortgage finance institution, and 14 Microfinance banks in February 2025 for the Banking Sector Innovation Survey 2024.
MFBs have cut back on innovation in climate-change related products, down from 57% in 2023 to 36% in 2024. The proportion of commercial banks with such products has, conversely, increased from 58% to 61%.
Most banking institutions are innovating in credit, deposit, and capital-raising services, as well as payments, clearing and settlement services. Almost all institutions now have a mobile banking solution mainly to assist in administration and customer relationships, but the credit process remains the least digitised area within the sector.
The survey shows that 79% of banks and 79% of MFBs introduced an innovative product in 2024, compared to 87% of banks and 79% of MFBs in 2023, respectively. In 2024, 26% of commercial banks and 50% of MFBs introduced an innovative product in the area of market support services such as consumer protection, customer identification and authentication.
This was a decrease for commercial banks and an increase for MFBs which had 39% and 28% introducing new products in this area in 2023, respectively. The increased innovation by MFBs in this area highlighted the increased focus by MFBs in enhancing compliance with Know Your Customer (KYC) requirements.
Investment management and custodial services, and incidental business activities such as bancassurance were the functional area with the least innovation during the period, with 11% of the commercial banks and 14 percent of MFBs indicating to have introduced an innovative product in these areas, respectively.
Overall, most banking institutions now consider cyber-related risks among the top three innovation-related risks, followed by compliance risk for commercial banks, and operational risks for MFBs. There has also been a significant shift that has downgraded third-party management as the third common risk for institutions.
“The shift to compliance risk by commercial banks and strategic risk by MFBs led to the shift in priorities from third- party management risk,” CBK said in the survey.
On average, innovation teams constitute a quarter of the total staff component at the institutions. The teams are also largely-53%-male and 47% female, an improvement from 57% male and 43% female in the previous survey.
