In­no­vate your busi­ness model: Ful­fill­ing a so­ci­etal need for fi­nan­cial in­clu­sion

Business a.m. - - SPECIAL FEATURES - James Mwangi, manag­ing di­rec­tor and CEO, Eq­uity Group Hold­ings

We’ve as­sisted those 40,000 shop­keep­ers to pro­fes­sion­alise: they’ve be­come owner–man­agers, manag­ing a bank for a com­mis­sion

JAMES MWANGI, CEO of Kenya-based Eq­uity Bank, built the com­pany with one core pur­pose in mind: to solve the so­cial prob­lem of lack of ac­cess to fi­nan­cial ser­vices. Eq­uity Bank was born out of Mwangi’s turn­around of a then-small Kenyan build­ing so­ci­ety, which was con­verted into a com­mer­cial bank in 2004. To­day, it has more than 12 mil­lion clients in six coun­tries across East and Cen­tral Africa, as well as nearly $5 bil­lion in as­sets and re­ported pre-tax prof­its of $270 mil­lion.

James Mwangi: I grew up in a ru­ral area of Kenya, and my own mother, Grace, didn’t have a bank ac­count. The near­est bank branch was 50 kilo­me­ters away, and the min­i­mum open­ing bal­ance was equiv­a­lent to sev­eral years of her earn­ings. My mother would also have been in­tim­i­dated by banks, with their gran­ite floors, long queues, and for­mally dressed of­fi­cials. To make mat­ters worse, banks of­ten had a seven-day rule be­tween with­drawals. If your child got sick, you couldn’t go back and with­draw money from your ac­count if you’d been there the day be­fore. Banks sim­ply didn’t un­der­stand the day-to-day fi­nan­cial sit­u­a­tions of or­di­nary peo­ple. Kenyans’ re­sponse was to keep their money un­der the mat­tress.

Fewer than one in ten Kenyan adults had a bank ac­count at the turn of the 21st cen­tury. To­day, thanks in part to Eq­uity Bank’s in­no­va­tions, two-thirds of them do. We knew we had to ad­dress the needs of peo­ple like my mother. We wanted to give bank­ing a hu­man face and cre­ate the con­cept of the bank as a mar­ket­place where peo­ple would feel at home. We did away with high min­i­mum bal­ances, cre­ated af­ford­able prod­ucts, and, most im­por­tantly, de­liv­ered them where peo­ple lived. One in­no­va­tion was to in­tro­duce what we

called “mo­bile vil­lage bank­ing,” or bank­ing on wheels. Long be­fore cell­phone bank­ing came along, we cre­ated mini­bank branches that could fit in the back of a Land Rover and drove them from vil­lage to vil­lage across ru­ral Kenya. Maybe our best-known in­no­va­tion, though, is our agency bank­ing model: Eq­uity Bank has ac­cred­ited more than 30,000 small re­tail out­lets across the coun­try as bank agents, able to ac­cept de­posits, dis­pense cash, open ac­counts, ap­ply for pay­ment cards, pay bills like those for power or wa­ter, and much more. It took us six years to con­vince the Cen­tral Bank of Kenya that shop­keep­ers could ac­cept cash as bank­ing agents. But once we did, we were able to mul­ti­ply our net­work 1,000-fold. That has re­ally taken bank­ing to the last mile in ev­ery vil­lage. As a re­sult, bank­ing now com­petes with sugar and salt as a prod­uct. The agency model has as­sisted in our con­tin­ued pur­suit of de­mys­ti­fy­ing bank­ing. Our agents don’t talk to cus­tomers in bank­ing jar­gon—they use the lan­guage of the com­mon man in their en­vi­ron­ment. We’ve as­sisted those 40,000 shop­keep­ers to pro­fes­sion­al­ize: they’ve be­come owner–man­agers, manag­ing a bank for a com­mis­sion. That in turn has dis­trib­uted wealth across the coun­try. Our busi­ness model is high vol­ume and low mar­gin. Cost-ef­fec­tive­ness and ef­fi­ciency are key, and tech­nol­ogy plays an im­por­tant role. To­day, Eq­uity Bank has moved be­yond Land Rovers and en­abled true mo­bile bank­ing via our Equi­tel mo­bile-bank­ing ap­pli­ca­tion, which we launched in 2015. Equi­tel uses SIM over­lay tech­nol­ogy to en­able easy ac­cess by cus­tomers of ev­ery mo­bile provider. Equi­tel has be­come very big, very fast. To­day, our branches are do­ing 5,000 trans­ac­tions a day, our agents are do­ing 300,000 trans­ac­tions a day, and Equi­tel is do­ing 900,000 trans­ac­tions a day. As cus­tomer pref­er­ences for chan­nels of ser­vice con­tinue to evolve to self-ser­vice de­vices, the old brick-and­mor­tar branches are mov­ing to be­come ser­vice and ad­vi­sory cen­ters. The bank’s cost model is shift­ing from a fixed-cost to a vari­able­cost model. This has helped us re­duce our cost-to-in­come ra­tio to an av­er­age of 49 to 50 per­cent, down from a high of 60 to 70 per­cent some years pre­vi­ously. We are al­ready look­ing ahead at fu­ture in­no­va­tions. We see so­cial me­dia as the next chan­nel for bank­ing, so our next big fo­cus is chan­nel in­no­va­tion. We are also look­ing be­yond fi­nan­cial ser­vices and build­ing a new busi­ness in the health­care space—a net­work of med­i­cal cen­ters called Eq­uity Afia. The in­spi­ra­tion came from our char­i­ta­ble foun­da­tion, which has awarded some 6,000 univer­sity schol­ar­ships through paid in­tern­ships to aca­dem­i­cally gifted stu­dents from across Kenya’s 47 coun­ties, un­der the Eq­uity Lead­ers Pro­gram. We looked at our grad­u­ates and found that 600 of them had been to med­i­cal school. We al­ready knew that 40 per­cent of the de­faults on our bank loans were due to ill health in the fam­ily, so we em­pow­ered our med­i­cal grad­u­ates as en­tre­pre­neur doc­tors, help­ing them start clin­ics and sup­port­ing them with sys­tems to man­age their clin­ics. At the same time, we are pro­vid­ing our bank­ing cus­tomers with med­i­cal in­sur­ance.

These prod­ucts in­ter­twine the com­mer­cial in­ter­ests of the bank and a so­lu­tion to ad­dress the health chal­lenge of our so­ci­ety.

So­cial im­pact is em­bed­ded in our DNA, and it is what has en­abled Eq­uity Bank to scale: to­day it is the big­gest bank, by mar­ket cap­i­tal­iza­tion, in East and Cen­tral Africa. We see the bank not just as a com­pany but as a move­ment for so­cioe­co­nomic trans­for­ma­tion. Peo­ple see them­selves as part of that move­ment.

They say, “I joined, I be­came a mem­ber,” not “I opened an ac­count.”

That con­cept of be­long­ing has been cen­tral to Eq­uity Bank’s growth.

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