Recently when Equity Bank customers were having problems drawing funds from the bank the "clever" Nairobians were at it on social media and everywhere. The rumours still persist. Where are they coming from and what would be the motive? Or are they actually true?;
"I told you guys not to put your money in Equity, now the bank is collapsing with your money. You haven't heard? Equity is in trouble, just as I predicted ages ago."
The truth is that they are mostly hilarious stuff when you consider the cold facts. Today Equity is the largest bank in East and Central Africa and beyond in terms of account holders. Out of every 5 accounts held in a bank in Kenya, a staggering 4 are with Equity. What are the implications of this in simple language? Let me give you a simple example easily understandable even if you are not a Finance and banking person. Any time the over 3.6 million account holders make a withdrawal the bank makes money. Try and multiply 3.6 million by a mere Kshs 20!! And these days the vast majority of the "tellers" are not costly unionized humans but machines (ATMS) that work 24/7 and 365 days a year without pay.
The other big secret behind the Equity cash machine is the fact that their loan portfolio is mostly small amounts of cash loaned to low income earners who pay back within 3 months or so. For those who do not have a head for figures what that means is that when the other big banks loan out Kshs 1 million to be repaid over 5 years, Equity loans the same amount and it is repaid in 3 months. meaning that the 1 million will go out 20 times at Equity when it goes out only once at Barclays. And by the way low income earners are more faithful in paying back loans than seasoned rich people some of whom will consult their lawyer for technicalities to help them keep the money for as long as possible.
Any bank can collapse but the truth is that your money today in Kenya will be safest with Equity Bank.
The recent troubles at Equity Bank understandably caused a run on the bank. Now a bank ONLY survives on the confidence of its' customers and there is no bank that will not suffer serious cash flow problems and probably even collapse if a huge chunk of their customers wake up one morning and all decide to withdraw all their funds. But Equity has survived many runs in their earlier leaner years courtesy of rumours from jealous managers at big banks like (edited out) who have done their best to regularly spread rumours that the bank is NOT stable and can go under at any time. In one particular memorable case one of the big banks mentioned "paid" a popular gutter press publication to carry a screaming headline that the bank was going under. Equity did the only thing a bank can do in such a situation found the cash to pay those who wished to close their accounts in a hurry. They did this so well that the public realized that there was nothing to the rumours and many promptly returned their money to the same bank.
There are some folks who just hate Equity Bank for tribal reasons. They say that it is owned by Kikuyus. Personally I admire innovation no matter what tribe is responsible for it.
Sadly Kenyans have a very short memory. Let me tell you a short story to jog your memory.
Once upon a time banks in Kenya were rich and fat and sitting on their butts asleep most of the time. Customers were treated like trash and a nuisance to the bank. It was like the banks were doing people a favour accepting their deposits. Then the Kenyan government got broke because donor funding dried up in protest of human rights violations and the then dictatorial one party system. The Moi government decided to borrow huge amounts of money from the public by setting up Treasury Bills with crazy interests rates. Now the banks found a new source of super profits. Buy treasury bills and go on holiday. Come back and claim the 80 % interest, buy more treasury bills and go back to the beach. They were sure that the honeymoon would last forever and so they started closing accounts. They asked all customers who had less than Kshs 20,000 in their accounts (their biggest headache) to come and collect it and put it under the mattress if they so wished. Those who delayed arrived to find their accounts already closed and had to run around in circles to get the paltry cash remaining after the bank had imposed heavy penalties.
Equity was a small struggling building society then. It invited these customers to open accounts and made the whole process so easy. From the rude treatment in the big banks the friendly understanding atmosphere at Equity attracted many customers. Then the bank got really innovative, it went down to the grassroots to look for opportunities to lend cash on short term basis to ordinary low income Kenyans. This was the niche which all the banks were sure was NOT feasible and would easily cause a bank to shut down, or so they thought. Indeed they laughed when they heard what Equity was doing. "kiosk" bank, they dubbed them. But the innovative small bank soldiered on making a killing from lending small amounts to desperate Kenyans looking to buy tiny plots of land from land-buying companies that had sub-divided them into tiny plots barely large enough to stand on.
The rest as they say is story. Today a significant ownership of the bank is held by foreign investors with deep pockets but the bank continues to do what it does best serving the small man. Hilariously one of the big banks tried to copy the Equity model of lending money with minimal security to office workers in Nairobi and lost such a huge sum of cash that that particular mess will never be sorted out and has been written off in the books.
Oh and about kiosk banking, today all the banks are on the streets with tents (another Equity innovation) and moving door to door luring people to open accounts with them. For those who lived when banks were arrogant this is still an unbelievable sight to behold.
Now about the recent problems with withdrawals at the bank my impeccable sources tell me it was incompetence on the part of a worker in the IT department who missed a critical step in updating the system and what followed was a chain of events that led to the crisis. Sadly that single man has so dented the reputation of the bank and caused its' many enemies to have a field day with their propaganda.
The Equity story always fills me with plenty of pride. Give me such homegrown innovation any day... I don't really give a damn whether it is by a Kikuyu, Luo, Turkana or whatever.
P.S. Actually Equity is no longer the largest bank in terms of account holders. I am reliably informed that it has been overtaken by CBA (Commercial bank of Africa). Yep that outfit owned by (edited out). That is when you take into account M-Shwari accounts which are held in partnership with Safaricom's Mpesa. But that is a story for another day.
(article courtesy of Kumekucha's Raw notes with sensitive parts edited out).
No comments:
Post a Comment