D S M 6 0 1 – S T R A T E G I C M A N A G E M E N T

G R O U P A S S I G N M E N T : E Q U I T Y B A N K C O M P A N Y P R O F I L E

A U G U S T - D E C E M B E R 2 0 1 5 , T U E S D A Y E V E N I N G C L A S S

G R O U P M E M B E R S :

G R A C E T H U N G U – D 6 1 / 7 3 4 7 6 / 2 0 1 5

M A U R E E N K E N D I – D 6 1 / 7 7 9 0 9 / 2 0 1 5

S A M U E L A N U N D U A N Y O N A – D 6 1 / 7 7 4 4 0 / 2 0 1 5

T A R S I L A W A N J A – D 6 1 / 7 4 3 4 1 / 2 0 1 4

Z A C H A R Y M O K U A – D 6 1 / 6 0 2 7 0 / 2 0 1 3

TABLE OF CONTENTS

1. Preamble........................................................................................................................................................................................... 3

2. History................................................................................................................................................................................................ 3

1.1 Equity Building Society.......................................................................................................................................................3

1.2 Equity Bank Kenya Limited.............................................................................................................................................. 4

1.3 Equity group holdings limited......................................................................................................................................... 4

1.3.1 Equity Group Foundation......................................................................................................................................... 5

2 Ownership........................................................................................................................................................................................ 5

3 Vision, Mission and Core Values............................................................................................................................................. 6

4 Governance...................................................................................................................................................................................... 7

5 Scope of Operations..................................................................................................................................................................... 8

5.1 Branch Banking...................................................................................................................................................................... 8

5.2 Branchless Banking.............................................................................................................................................................. 9

5.3 Diaspora Banking.................................................................................................................................................................. 9

6 Environmental Factors, Challenges & Opportunities.................................................................................................10

6.1 External Environment Factors..................................................................................................................................... 10

6.1.1 Political Factors.......................................................................................................................................................... 10

6.1.2 Economic & Social Factors.................................................................................................................................... 12

6.1.3 Legal and Regulatory Environment.................................................................................................................. 15

6.1.4 Technical Factors....................................................................................................................................................... 16

6.2 Internal Environment Factors...................................................................................................................................... 16

6.2.1 Leadership and Management...............................................................................................................................16

6.2.2 Human Resources..................................................................................................................................................... 16

6.2.3 Technology................................................................................................................................................................... 17

6.3 Challenges.............................................................................................................................................................................. 17

7 Performance................................................................................................................................................................................. 19

7.1 Equity bank numbers....................................................................................................................................................... 19

7.2 Agency banking................................................................................................................................................................... 19

7.3 Regional markets................................................................................................................................................................ 21

7.4 Merchants & payment...................................................................................................................................................... 21

8 Accolades, Awards and Recognition.................................................................................................................................. 21

9 Conclusion..................................................................................................................................................................................... 23

10 Works Cited............................................................................................................................................................................... 24

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1. PREAMBLE

This paper attempts to look at the context within which Equity operates to make sense of its strategic

decisions over time and their effect on the company’s performance. We aim to establish a nexus between

the environmental conditions of the firm, its strategic decisions and subsequent performance. In doing

this, we explore the origins and evolution of the Equity Bank, its ownership, guiding philosophies,

governance, environmental conditions, performance and future outlook.

2. HISTORY

1.1 EQUITY BUILDING SOCIETY

Equity Bank was founded as Equity Building Society (commonly known as ‘Muiganania’ in Kikuyu

language, which literally translates to ‘equalizer’) in October 1984 by Dr. Peter Kahara Munga and was

originally a provider of mortgage financing for the majority of customers who fell into the low income

population. Dr. Peter Kahara Munga had established Equity Building Society in Kangema in the present

day Murang’a County, with the aim of helping peasant farmers from the area. He noted one Dr. James

Mwangi’s financial administrative skills and employed him as the Finance and Strategy Director at Equity

Building Society. Dr. Mwangi was later promoted and became the Bank’s Managing Director (MD) and

Chief Executive Officer (CEO) a rank he still holds to date. Dr. James Mwangi recruited millions of

peasants into Equity Bank and made the ‘un-bankable’ to be bankable. The move resulted in massive

accounts opening in Equity Bank.

The society’s logo, a modest house with a brown roof, resonated with what was its target market and

determination to make small but steady gains toward a better life, seeking security and advancement of

its dreams. The vast majority of Kenyans had historically been excluded from access to financial

resources. In 1993, Equity Building society was declared technically insolvent but this was a

transformation into a rapidly growing microfinance and which was converted to Equity Bank then a

commercial bank. This was the beginning of the current Equity Bank’s inspirational success story.

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1.2 EQUITY BANK KENYA LIMITED

Equity bank Kenya limited is a financial service provider with its headquarters in Nairobi, Kenya. It is

licensed as a commercial bank, by the Central Bank of Kenya, and National Banking Regulator (Central

Bank of Kenya, 2015). Equity bank Kenya limited was incorporated in 2014 as a result of the corporate

restructure of Equity Group Holding Limited. Prior to November 2014, Equity Group Holdings limited

operated both as a licensed bank and a holding company for its subsidiaries. The bank maintains a

network of 161 branches across Kenya, which includes over 40 branches in Nairobi (Kenya Bankers

Association, 2015).

On October 31, 2014 Equity Bank announced its intention to incorporate a new wholly owned subsidiary,

Equity Bank Kenya Limited, to which it would transfer its Kenyan banking business, assets and liabilities

(Equity Bank Group (E.B.G.), 2014) The rationale for the reorganization was that, by converting Equity

Group Holdings limited into a non-trading holding company (as defined under the banking Act cap 486

Laws of Kenya) that owns both banking and non-banking subsidiary companies and provides strategic,

brand, risk and talent management to its subsidiaries, the group would be better placed to invest and to

develop the existing and new businesses as part of its third phase of growth and transformation

(Wikipedia - The Free Encyclopedia, 2015).

During an extraordinary shareholders general meeting held on November 24, 2014, it was resolved to

adopt the proposed reconstruction thus leading to the formation of Equity Bank Kenya limited (Equity

Bank Group, 2014)

1.3 EQUITY GROUP HOLDINGS LIMITED

Equity Group Holdings Limited was incorporated on 21st December, 2004 as a holding company. It has a

customer base in excess of 9.2 million in the six East African countries that it serves making it the largest

commercial bank on the African continent by customer numbers.

Additionally, it has an asset base estimated at over US$3.84 billion (KES 339.44 billion) and shareholders’

equity in excess of US$644.6 million (KES 57.1 billion) as at 30th September 2014. The companies that

comprise the Equity Group Holdings limited include the following, as at 31st December 2014 (Equity

Group Holdings Limited, 2014):

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1. Equity Bank Kenya limited- Nairobi, Kenya

2. Equity Bank south Sudan limited- Juba, South Sudan

3. Equity Bank Rwanda limited- Kigali, Rwanda

4. Equity Bank Tanzania limited-dares salaam-Tanzania

5. Equity Bank Uganda limited-Kampala-Uganda

6. Procredit Bank Congo SARL-Kinshasa-DRC

7. Equity Consulting Group limited-Nairobi-Kenya

8. Equity Insurance Agency limited-Nairobi-Kenya

9. Equity Nominees limited-Nairobi-Kenya

10. Equity Investment Services limited-Nairobi-Kenya

11. FinServe Africa limited-Nairobi-Kenya

12. Equity Group Foundation-Nairobi-Kenya

1.3.1 EQUITY GROUP FOUNDATION

Equity Bank in 2010 established the Equity Group Foundation. This innovation and creative vehicle

transformed the concept of philanthropy and corporate social responsibility. While Equity Group

Foundation champions the socio-economic transformation of the people of Kenya and seeks partnerships

along six cluster thematic areas, Equity Bank provides the infrastructure of delivery hence reducing the

operational costs for the Foundation and increasing the rate of return on any social investment.

The foundation has six social thematic areas of focus: Education and Leadership Development; Financial

Literacy and Access; Entrepreneurship, Agriculture, Health, Innovations and the Environment.

2 OWNERSHIP

Shares of the stock of Equity Group Holding limited, the parent company of Equity bank are listed on the

Nairobi stock exchange (NSE) under the symbol EQTY. The groups stock is also cross-listed on the

Uganda securities exchange (USE) under the symbol EBL and the Rwanda Stock Exchange as EQTY.

As of January 2015, shareholding in the group's stock was as depicted in the table below (Wikipedia,

2015):

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Rank Name of Owner Percentage Ownership

1 Norfininvest AS of Norway 12.23

2 British-American Investments Company 10.63

3 National Social Security Fund of Kenya 5.58

4 Genesis Investment Management LLP of the UK

4.21

5 Equity Bank Employees’ Share Ownership Plan 4.07

6 James Njuguna Mwangi 3.45

7 Fortress Highlands Limited 2.73

8 National Social Security Fund of Uganda 2.44

9 Andrew Mwangi 2.44

10 Nelson Muguku 1.76

11 Others 50.46

Total 100.00

3 VISION, MISSION AND CORE VALUES

Equity Group Holdings Limited’s is guided by corporate philosophies that outline its purpose, vision,

mission, positioning, tagline and motto. These have changed over the years as the company has grown

and evolved. Currently, they are are as follows, verbatim from their website (Equity Group Holdings

Limited, 2015):

Purpose: We exist to transform the lives and livelihoods of our people socially and economically by

availing them modern, inclusive financial services that maximize their opportunities

Our Vision: To be the champion of the socio-economic prosperity of the people of Africa

Mission Statement: We offer inclusive, customer focused financial services that socially and

economically empower our clients and other stakeholders

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Positioning Statement: Equity provides Inclusive Financial Services that transform livelihoods, give

dignity and expand opportunities.

Tagline: Your Listening, Caring Partner

Our Motto: Growing Together in Trust

The bank takes pride in having an organization culture that values people, enhances performance and

supports the business. This culture is grounded on seven core values identified by the bank as:

Professionalism, Integrity, Creativity, Teamwork, Unity of Purpose, Respect and Dignity for Customers and

Effective Corporate Governance.

Equity’s vision has changed considerably since 1995, when it was first formalized:

1995–2000: To become the biggest microfinance provider in Kenya in terms of funding, loan portfolio

and profitability

2001–2005: To be the dominant microfinance provider in Kenya by the year 2005

2005 - To become the microfinance provider of choice in Kenya and the region

These changes reflect its change in focus, from thinking like a building society to an emphasis the

provision of microfinance services to the current expanded vision of championing socio-economic

prosperity in Africa. These changes were necessary for expansion of the scope and ambition of the firm.

The firm’s first mission statement (which has also changed and been refined over the years), took nearly

two years to complete, was wordy, but provided a goal that could be pursued:

“We, Equity Building Society, will mobilise savings and term deposits for the timely provision of loan

facilities to generate sufficient and sustainable profits. This will enable us to contribute to the members’

(clients’) welfare and to the national economy. Equity recognises the importance of staff members and

their contribution to the institution and will avail them of opportunities for growth and job security”

4 GOVERNANCE

The group has an eleven-member board of directors (Equity Group Holdings Ltd, 2015) is chaired by

Peter Kahara Munga, founder and one of the seven non-executive directors. Dr. James Mwangi serves as

the managing director and chief executive officer of the bank.

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The leadership team of the bank currently consists of:

i. A Managing director and CEO

ii. A Chief Operating Officer with nine departmental directors handling Corporate Strategy, Finance

Innovation and Payments, Technology & Information, Human Capital and Administration, Strategic

Partnerships & Programmes, Corporate & SME Banking, Marketing, Internal Audit and Equity

Foundation

iii. An Executive Chairman and a Director of FinServe Africa Limited

iv. An Executive Director of Regional Services with Managing Directors of the bank’s regional

subsidiaries reporting to him (currently South Sudan, Rwanda, Tanzania and Uganda)

5 SCOPE OF OPERATIONS

Equity Bank Kenya Limited is a financial services provider headquartered in Nairobi, Kenya. To offer

financial services, it uses Branch banking, Branchless banking. It also has products such as Diaspora

banking as well as Mobile banking through its group subsidiary, FinServe Africa Ltd and the MVNO -

Equitel.

5.1 BRANCH BANKING

Branch banking refers to engaging in banking activities such as accepting deposits or making loans at

facilities away from a bank's home office. The latest listing of bank branches in Kenya (Kenya Bankers

Association, 2015) lists Equity Bank Kenya Ltd as having 161 branches across Kenya, which includes over

40 branches in Nairobi. Figure1. & 2 below give depictions of the branch distributions in Kenya and the

East African Region respectively.

The bank is Present in five countries in East Africa: Kenya, Uganda, Rwanda, South Sudan and Tanzania.

Equity Bank had 161 branches in Kenya (as at November 2015), 38 in Uganda, 11 in South Sudan, 11 in

Rwanda and 9 in Tanzania (Equity Group Holdings Limited, 2014).

Equity bank limited plans to expand its operations to 10 countries (Ethiopia, Burundi and the Democratic

Republic of Congo in the next two years before expanding southwards to Mozambique, Malawi, Zambia

and Zimbabwe) within the next 5years at a cost of Sh200 billion (Business Daily Africa, 2015)

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Fig. 1 Equity Bank Branch Distribution in Kenya

Central18%

Coast11%

Eastern9%

Nairobi28%

North eastern6%

Nyanza8%

Rift Valley 16%

Western 4%

Central

Coast

Eastern

Nairobi

North Eastern

Nyanza

Rift Valley

Western

Fig. 2 Equity Bank Branches by Country

Kenya70%

Uganda16%

Southern Sudan

5%

Rwanda5% Tanzania

4%

Kenya

Uganda

Southern Sudan

Rwanda

Tanzania

5.2 BRANCHLESS BANKING

Branchless banking refers to a distribution channel strategy used for delivering financial services without relying on bank branches. While the strategy may complement an existing bank branch network for giving customers a broader range of channels through which they can access financial services, branchless banking can also be used as a separate channel strategy that entirely forgoes bank branches.

Examples of branchless banking technologies used by Equity Bank include Agency Banking, Internet Banking, Automated Teller Machines (ATMs), Point of Sale devices (POS), EFTPOS devices and mobile phone banking. Each of these technologies serve to deliver a set of banking services and are part of

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distribution channels that may be used either separately or in conjunction to form the overall distribution channel strategy.

As at 30th September 2015 investor briefing report, the number of agents stood at 22,017 indicating 39% growth. It has numerous ATMs

5.3 DIASPORA BANKING

Equity Bank also has an arrangement that allows people working and living out of Kenya or the East

African region where it has branches to enjoy banking services as if they were in the region. To facilitate

this, Equity bank has appointed agents in various countries. There are Equity agents in the USA, Canada,

UK, South Africa, Germany, Australia, UAE and Botswana

6 ENVIRONMENTAL FACTORS, CHALLENGES & OPPORTUNITIES

Over its 31 years of existence, Equity Bank has experienced both great successes and challenges. Some of

these challenges almost led to the firm’s collapse, case in point being the Building Society’s near

insolvency in 1994 (The Economist, 2012).

The environmental conditions that have shaped Equity Bank over the years may be analyzed broadly

under internal and external environmental challenges.

6.1 EXTERNAL ENVIRONMENT FACTORS

From the history section outlined in section one, Equity Bank started out as a Building Society with the

goal of providing mortgage financing to low-income Kenyans. Its initial scope and therefore external

environment were quite different from its focus later on as a bank. It had to move from a focus on

mortgages to members to savings and loans and from private ownership to public listing as a commercial

bank on the Nairobi Stock Exchange in 2006. The firm’s management however contends that part of their

success lies in the fact that they remained true to their core value of empowerment of Kenya’s poor (BBC

News, 2011).

6.1.1 POLITICAL FACTORS

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Equity Building Society was formed in the single party era in Kenya when the government enforced tight

controls over the finance sector. In the early 1980s, the present Chairman of the Board, Peter Munga, was

a senior government employee exposing him to the government’s rural development policy and the

socio-political circumstances in the country. Around the year 1982, rules were relaxed and resulting in

the arising of opportunities for Kenyans to start formal, licensed financial institutions that could bring

financial services to the ‘common mwananchi’ who hitherto had had no access to the formal banking

sector. Peter Munga and John Mwangi seized upon this opportunity to set up Equity Building Society. This

strategy of choice of the legal format was a function of what was available at the time and what could be

afforded, both in terms of license fees and capitalization (Coetzee, Kabbucho, & Mnjama, 2002).

The first decade or so of operations of the Society were difficult as there still was a repressive climate

characterized by political uncertainties and pressures resulting in poor growth rates that were not good

for businesses. These uncertainties contributed to high interest rates further exacerbating defaults

(Waweru & Kalani, 2009). This reflected badly in the performance of EBS such that by 1994, the Central

Bank of Kenya declared it insolvent.

The CBK however spared Equity from liquidation, a move which Coetzee, Kabbucho and Mnjama, 2002,

found partly to be based on the close working relationship Equity had with the CBK and the recognition

of the positive value Equity was playing in changing lives of Kenyans: “…We put these questions to both

Equity and the CBK, and what emerged is a picture of Equity management greatly valuing CBK supervision

and of the CBK having developed a rational respect for Equity as a “financial institution that has touched

many Kenyans in a special way”. While continuing to raise concern about areas of operation in which Equity

is seen to contravene the law, the CBK has opted to apply rational judgement, recognizing that the Building

Societies Act does have limitations…” (Coetzee, Kabbucho, & Mnjama, 2002)

The early 1990s witnessed the height of the clamor for a multiparty democracy which the ruling party

conceded to in 1992. This coincided with the liberalization of the economy and the financial markets.

Equity benefited immensely from the latter, as did the microfinance sector in general. The economy

however kept dwindling with growth rates approaching zero by the turn of the century (a growth of 0.6

percent in 2002).

From 2003 to 2013, Kenya experienced a new era of political freedom, democracy and progressive

development strategies brought about by the National Rainbow Coalition (NARC) and personified in the

Economic Recovery Strategy for Wealth and Employment Creation (ERSWEC) of 2003-2007 – an Action

Plan that harmonized strategies for accelerated economic growth with the country's poverty reduction

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strategies and the ideals outlined in the NARC Manifesto (Government of Kenya, 2003) - and later the Kenya

Vision 2030– a long-term (2008-2030) national planning strategy anchored on three main pillars namely;

economic, social and political, under which flagship projects and other priority programmes will be

implemented during the next 23 years to transform Kenya into a newly industrializing, “middle-income

country providing a high quality life to all its citizens by the year 2030” (Government of the Republic of

Kenya, 2007).

The implementation of these national strategies spurred fairly high growth from the year 2003 to 2013

with expansion of the capital and financial markets, roping in numerous amounts of money from the local

population as the NSE experienced a boom (The Guardian, 2007). Growth was steady at about 5% a year.

Interest rates dropped and inflation stabilized while tax collection increased almost five-fold, from

202billion in 2002-2003 to KSh963.8 billion in 2013-2014 (National Treasury of Kenya, 2015).

Equity did its listing during this period, which was a wild success. Loans to individuals and small

businesses skyrocketed due to reduced interest rates and expanding opportunities for business that were

further bolstered by increased government spending on development projects.

Equity gained a massive market share in this period due to its focus on individual clients as many foreign

banks converted from retail to corporate banks, leaving a vacuum in the retail sector; ending up with a

customer base of 9.6million customers and a profit before tax of KSh.22.3billion by the end of 2014.

There was a renewed effort at integration of the East African countries with renewal of the East African

Community (EAC) in the year 2000. Equity embraced the opportunity this brought to expand its

operations within the East African Region. In 2008, after negations with the Southern Africa Development

Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA) the EAC agreed

to an expanded free trade area including member states of all three organizations.

This bolstered Equity’s quest for expansion; Equity bank limited plans to expand its operations to 10

countries (Ethiopia, Burundi and the Democratic Republic of Congo in the next two years before

expanding southwards to Mozambique, Malawi, Zambia and Zimbabwe) within the next 5years at a cost

of Sh200 billion (Business Daily Africa, 2015)

6.1.2 ECONOMIC & SOCIAL FACTORS

6.1.2.1 EQUITY FIRST DECADE: 1984-1993

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As noted in the preceding section, the first decade of Equity’s operation coincided with a period of

dwindling economic fortunes in Kenya. A suffocating political environment was exacerbated by crippling

Structural Adjustment Programmes by the IMF and World Bank; a series of economic and political

reforms initiated by the World Bank and International Monetary Fund in Kenya since 1988 and especially

after 1991 that transformed many aspects of the daily life of Kenyan people. The austerity policies

resulted in a huge decrease in government spending on health, education, and infrastructure coupled

with government divesture from various sectors through privatization of state run corporations. These

policies had an effect of shrinking the economy as they have been linked to a high rate of income

inequality, inflation, unemployment, retrenchments and so on, which have lowered the living standards,

especially, those relating to the material resources in the family (Rono, 2002).

On the other hand, the programmes resulted in slow but steady progress in domestic price decontrol and

trade liberalization. Between 1991 and 1993, there was a weak reform effort and growing political

problems, which led to suspension of balance of payments support. This resumed in mid-1993 and

between 1993 and 1995; the government completely liberalized the foreign exchange market, ended

import licenses and completed domestic price decontrol, making it easier to do business (Kabubo-

Mariara & Kiriti, 2002).

For the first decade of operation was a difficult one for Equity and small finance institutions in Kenya.

Many were being closed; in some cases, costs simply became too high, combined with the loss of clients

and increasing levels of non-repayment of loans. In these years, many employers, and especially the

government, insisted on employees opening accounts for salary deposits in government-controlled banks

only. Many of the smaller financial institutions took institutional deposits from government departments

and parastatals to boost their capital base. Others succumbed as parastatals called in their deposits from

institutions whose clients defaulted on loans.

The Kenyan society’s confidence in these small local owned financial institutions rapidly dwindled.

Equity adopted a direct one-on-one customer mobilization strategy, with their staff often having to drive

new clients to branches by car to open new accounts; often starting with their own family members and

close friends. They had about 20 staff that worked long hours and apparently had little in the way of a pay

rise in that first decade (Coetzee, Kabbucho, & Mnjama, 2002). Loss of confidence in the venture was also

exhibited at the top level of management; the initial board of five members shrunk to two.

The CBK rating report of December 1993 stated that Equity was technically insolvent. The supervision by

the Board was poor and management was inadequate. Non-performing loans stood at 54% of the

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portfolio and accumulated losses totaled Ksh.33 million, against a capital investment of KSh.3million. At

this stage, deposits were being used to meet operating expenses. The liquidity ratio stood at 5.8%, way

below the required 20%. The CBK did not request the closure of Equity as the Central Bank was merely

the inspection function, and only the Registrar of Building Societies had the power to close the institution.

It was argued that since there were no complaints from clients, Equity should be given the chance to turn

around.

EBS was in the doldrums and needed to change strategy fast to avoid imminent closure. The CBK offered

them a helping hand by not liquidating them; an opportunity they did not squander.

6.1.2.2 EQUITY’S SECOND DECADE: 1994-2003

This period was characterized by increased liberalization of the economy and financial sector

redefinition. Many foreign banks converted from retail to corporate banks, and leaving a vacuum in the

retail sector. Similarly, many banks closed their rural branches and ‘rationalized’ urban branches –

generally meaning closure of branches that were not located in the ‘high-streets’ of cities. A renewed

focus on Savings and Credit Cooperative Societies (SACCO’s) ensued. They offered financial services to

the retail sector where main stream banks were fleeing. At the same time, the country moved into an

economic decline, with growth rates dropping to 0.6% by 2002.

Equity capitalized on the new found space by targeting the middle and low income earners and SMEs that

were shunned by the mainstream banks. They offered very low opening charges and minimum balances

in addition to making it easy and quick to open accounts with them.

Equity also engaged external consultants to advise them on a new strategic direction. Of note were James

Mwangi, a Bachelor of Commerce graduate from the university of Nairobi, who was then a banker with

Trade Bank (Africa Business Magazine, 2012) and Nancy Nyambici, a training specialist, both of whom

spearheaded the training and creation in the staff and in Equity as a whole a new awareness of their

ability to make a change and of the great potential in the microfinance market.

In early 2001, Equity commissioned a survey entitled “Opportunities to Increase Market Penetration

through Product Refinement and Development” with the following objectives in mind:

To establish Equity’s effectiveness in penetrating these markets

To analyse the competition

To re-examine the suitability of the existing products and services in serving the markets

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The survey established that Equity could deepen its market penetration by refining its products to match

the needs of its clientele. The survey report also outlined Small and Medium Enterprises (SMEs),

Commercial Smallholder Farmers and Salaried employees as three main segments of Equity’s

microfinance market that could be targeted for deeper market penetration.

As part of the survey, Equity divided its competitors into four categories based on their legal structures:

seven commercial banks, two non-bank financial institutions (including Postbank), Non-governmental

Organizations (NGOs) and ten savings and credit cooperative societies (SACCOs).

6.1.2.3 EQUITY’S THIRD DECADE: 2004-2014

This period witnessed rapid growth of the firm. Equity did its listing during this period, which was a wild

success due to the favorable macroeconomic environment explored in the previous section. The bank

gained a massive market share in this period due to its focus on individual clients as many foreign banks

converted from retail to corporate banks, leaving a vacuum in the retail sector; ending up with a

customer base of 9.6million customers and a profit before tax of KSh.22.3billion by the end of 2014.

Loans to individuals and small businesses skyrocketed due to reduced interest rates and expanding

opportunities for business that were further bolstered by increased government spending on

development projects.

6.1.3 LEGAL AND REGULATORY ENVIRONMENT

Equity was setup during a period of tight legal and regulatory control of the financial sector. Luckily for

them, around the year 1982, rules were relaxed resulting in arising of opportunities for Kenyans to start

formal, licensed financial institutions that could bring financial services to the ‘common mwananchi’ who

hitherto had had no access to the formal banking sector. Peter Munga and John Mwangi seized upon this

opportunity to set up Equity Building Society.

Regulatory changes on issues such as minimum capitalization requirements and Microfinance Regulation

were used to inform the firm’s strategy to further its objectives. For example, at its inception, the strategy

of choice of the legal format was a function of what was available at the time and what could be afforded,

both in terms of license fees and capitalization (Coetzee, Kabbucho, & Mnjama, 2002).

Gradual legal and regulatory reforms were witnessed over the years as the government undertook

liberalization policies especially from the year 1991. The administration of opening and closure of

societies was done by the Registrar of Building Societies while the CBK’s supervisory department focused

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on the inspection of building societies. This brought about a dichotomy between inspections and the

monitoring of the implementation of corrections suggested a vacuum which led to some unsanctioned

practices by some societies. The CBK made an effort to change and adjust the Building Societies Act so

that these institutions increasingly resembled banks. This made it easy for Equity Building Society to

transition into a bank.

There have a mutually gainful relations between the firm and its regulatory body, evidenced in Equity’s

strategic decisions and their implementation. Coetzee, Kabbucho, & Mnjama, 2002 found that Equity

maintained a healthy interaction with the CBK, implementing their recommendations often, giving

examples of recommedation to srengthen internal audit systems and expand their board of governors.

6.1.4 TECHNICAL FACTORS

Technological advancements have been a major pillar of support to Equity’s operations and expansion of

service delivery. Equity has established merchants and payments, agency banking and mobile banking as

key strategic initiatives. To this end, they have deployed lots of ATMs, POS devices and had 17,500 Equity

Group agents as at 31st December 2014. Additionally, the setting up of Equity’s Mobile Virtual Network

Operator (MVNO) – Equitel – has given them the opportunity to offer mobile banking services; gaining

many more new clients and the ability to offer new products to existing clients, opening new revenue

streams.

6.2 INTERNAL ENVIRONMENT FACTORS

6.2.1 LEADERSHIP AND MANAGEMENT

Leadership is one of the most significant factors that have contributed to the success of Equity. It has had

quite a stable and dedicated senior management team. Of particular note are:

Founding member and Board Chairman, Peter Munga, who has given the Board an element of continuity and presence. He has served as a source of inspiration to the organization and newer Board members

John Mwangi, a former long serving Chief Executive Officer who steered the company through its formative and undoubtedly quite challenging years

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James Mwangi, former Finance Director and current CEO who is credited with spearheading the turnaround of the company from insolvency to the behemoth it is today by changing its focus from a building society to a bank, redefining the mission and vision of Equity and then promoting it to a creed

The Equity management team comprehensively implemented the management of change process

according to international best practice and employs its information system to analyse trends and make

strategic decisions.

6.2.2 HUMAN RESOURCES

The quality and culture Equity’s human resources has been an important pillar in the firm’s success from

early on. In its first decade of operation, the staff made a lot of sacrifices – long hours, extensive client

recruitment efforts in difficult terrain and barely any salary raises. They made clients out of their family

members, friends and other networks and bought shares in the bank as it was being set-up on

encouragement by their CEO (Africa Business Magazine, 2012).

When the firm was at its lowest in 1992-93, both management and staff credit the start of the turnaround

to the self-awareness, management skills and training provided by two consultants, James Mwangi and

Nancy Nyambici, in 1993/94. This created in staff the knowledge and confidence in their capacity to

change the firm’s fortunes. Additionally, this process culminated in formalization of the firm’s vision and

mission which was a collective effort among all staff. This served to strengthen teamwork and ownership

of the mission as well as identification of training needs.

The firm has pursued a strategy of hiring from within for most posts and recruiting young, educated

people with little or no experience at entry points so as to inculcate in them the firm’s desired culture.

Equity’s Wings to Fly Program, a major part of the firm’s Corporate Social Responsibility (CSR) program,

provides full secondary school scholarships, mentorship and leadership training to academically gifted

students from economically disadvantaged backgrounds. It additionally serves to identify talented,

outstanding students for future recruitment.

6.2.3 TECHNOLOGY

The bank embraced modern IT information systems to streamline and ease their back office operations.

It had a positive effect on their operations, for example, reducing customer turn-around time from 30-40

minutes to less than 5 minutes. Equity launched Bank 2000 in June 2000, completing the process of

computerization in a record of four months, which included the installation of local area networks (LANs)

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in eight branches. This greatly improved their efficiency in collecting and giving data and its service

delivery to customers as well as capacity to analyse trends for management decision making.

6.3 CHALLENGES

Equity’s management and the Board identified several challenges faced by the firm as it set out as on a

new trajectory to offer banking services, many of which are reflected in its 2002–2006 Strategic Plan.

They include the following:

1. Maintaining the client-focused culture, even with growth

2. Maintaining a quality loan portfolio and a satisfied customer base

3. Continually training its staff in the management of risk

4. Continuing to monitor its competition

5. Introducing frictionless inter-branch banking services and automated teller machines

6. Addressing the need for commercial banking capacity in staff and systems

7. Addressing clients’ concern that it would be difficult f or Equity to maintain its culture if it converted

to a bank

8. Extending its services to other parts of the country

9. Changing clients’ perceptions of the pricing of products

10. Conducting continued market research to track and react to changing client needs and demands

11. Addressing the fact that a greater public offering of shares could lead to mission drift

12. Further strengthening internal audit and control systems

13. Maintaining the current management culture, even though Equity is growing fast

14. Performing a deeper and wider analysis and profiling of Equity’s clients

15. Establishing the human resource function, headed by a senior professional

16. Ensuring that staff members are clear on the functioning of the comprehensive incentive system

(Coetzee, Kabbucho, & Mnjama, 2002)

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In addressing all these, Equity has turned its challenges into opportunities to strategically position

themselves as leaders in the banking sector in the region. They are continually developing and revising

their strategies to address these challenges; a process they are generally succeeding at as evidenced by

their continued growth and improved performance.

7 PERFORMANCE

Equity Group Holdings has registered strong growth in market share and revenue over the last decade; a

true testament to the soundness and correctness of its strategic direction and initiatives over the years.

From a loss of Kshs5m ($58,000) in 1993, the bank registered a profit of Kshs22.5bn (~$225m) in 2014.

The trends in growth and performance are outlined below:

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Fig.4: Equity Group Population Growth (Source: Equity Group Holdings Limited (Formerly Equity Bank

Limited) and Subsidiaries Annual Report and Financial Statements for the year ended 31 December 2014)

7.1 EQUITY BANK NUMBERS

Equity bank customer deposits, total assets, loan portfolio and profit before tax has seen continued

growth over the last five years. The figures clearly indicate that the strategic initiatives that the group

employed for the last five years have borne fruits. Some of the initiatives the group has undertaken

include but not limited to: Agency banking, growth into other geographical markets, merchants and

payments. Fig. 5 and Fig. 6 below illustrate this growth.

7.2 AGENCY BANKING

The number of equity group agents stood at 17,500 as at 31st December 2014. They accounted for 33%

of total bank cash transactions. This model is aimed at increasing reach of the bank services to the local

communities which previously had no access to banking services or had to travel very long distances to

access these services.

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Fig.5: Equity Bank Financial Growth (Source: Equity Group Holdings Limited (Formerly Equity Bank

Limited) and Subsidiaries Annual Report and Financial Statements for the year ended 31 December 2014)

7.3 REGIONAL MARKETS

Other markets have continued to play a significant role in the growth strategy of equity bank group. As a

matter of fact they contributed 30% of the revenues in the last financial results. The bank sees regional

markets as the new frontier for growth targeting to extend its presence to five more countries and give it

a total presence of ten countries in Africa.

7.4 MERCHANTS & PAYMENT

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Fig.6: Equity Bank Growth Metrics (Source: Equity Group Holdings Limited (Formerly Equity Bank Limited) and

Subsidiaries Annual Report and Financial Statements for the year ended 31 December 2014)

The Group now has arguably sub-Saharan Africa’s widest network of best in class payment channel

services and card business operators including American Express, Visa, MasterCard, PayPal, UnionPay,

SWIFT, JCB, VFX (Equity Direct) and Diners Club.

To support the strategic partnerships, Equity Group is actively recruiting more local merchants to

facilitate the regional acceptance of the various partner cards among other payment solutions beyond the

Bank’s channels. Key leading establishments and brands such in the retail and hospitality sectors such

are already on board and many more are in the acquisition pipeline.

8 ACCOLADES, AWARDS AND RECOGNITION

Equity Bank retains a passionate commitment to empowering its clients to transform their lives and

livelihoods. Through a business model that is anchored on access, convenience and flexibility, the Bank

has evolved to become an all-inclusive financial services provider with a growing Pan African footprint.

Equity Bank’s business model and its visionary leadership have continued to earn local, regional and

global accolades and recognitions. Some these include (Equity Group Holdings Ltd, 2015):

2014: Best Bank in East Africa award from THINK BUSINESS due to “Commitment and dedication

to the course of social economic transformation of East Africans” which was a Kenyan Award

presented in Nairobi, Kenya

2014: The bank with the lowest charges award from THINK BUSINESS for “Providing

banking services at affordable pricing” which was a Kenyan Award presented in Nairobi,

Kenya

2013 Distinguished Tax Payer, Top Ten Category a recognition for being amongst Kenya’s Top Tax

Payers 2013 by KENYA REVENUE AUTHORITY:

May 2013: Equity Bank was voted Best Bank in Kenya 2013 during the 8th edition of the THINK

BUSINESS BANKING AWARDS. The Bank also bagged the Best Bank in Kenya Tier 1 (banks with an

asset base exceeding Ksh.150 billion) and Bank with Lowest Charges during the annual awards. The

Banking Awards recognized and reward best practices in the banking industry based on various

parameters including customer service, innovation and reach

October 2013: Dr. James Mwangi was awarded the African Business Leader of the Year by AFRICA

INVESTOR. The Pan African initiative brings together over 150 of the continent’s most influential

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business and government leaders. The award is given to the business leader whose organization

is well-run with financial results increasing year on year, and embracing innovation, and model

corporate citizen

November 2013: Equity Bank Group Chairman Peter Munga was named Chairman of the Year

during the 4th edition of the annual CAPITAL MARKETS AWARDS for laying the vision that

became Equity Bank and promoting inclusivity in the financial sector

November 2012: Dr. James Mwangi was named the 'Forbes Africa Person of the Year 2012' at the

prestigious Porsche Centre in Victoria Island in Lagos, Nigeria. Dr. Mwangi won the award ahead

of five finalists who included Aliko Dangote, Founder and President, Dangote Group and Joyce

Banda the President of Malawi. The Person of The Year award recognizes the individual that has

made a significant impact in business through economic growth by creating employment and

spearheading innovation in the African continent, having the most influence on the events of the

year gone by

June, 2012: Equity Bank CEO and Managing Director Dr. James Mwangi was named 2012 Ernst &

Young World Entrepreneur of the Year at a ceremony held in Monte Carlo, Monaco. Dr. Mwangi was

picked from among the 59 country finalists shortlisted for the title across 51 countries, becoming

the first business leader from Sub Saharan Africa to win this prestigious award

June 2012: Equity Bank was awarded Best Managed Company in Africa award by EUROMONEY

MAGAZINE. The Bank won the award on a strong brand pull, regional footprint and corporate

governance, based on a survey of market analysts at leading banks and research institutes in

Africa

June 2012: Equity Bank was awarded the Most Innovative Bank in Africa Award at the AFRICAN

BANKERS AWARDS held in Arusha, Tanzania. The annual awards reward outstanding talent and

achievement in Africa's financial sector

September 2011: Equity Bank Group was listed as one of the 16 global emerging Markets New

Sustainability Champions by a World Economic Forum Report in 2011. Equity Bank Group was

recognized as the only financial service provider in the Emerging markets which meets the

threshold of sustainability based on a criteria covering, innovation, growth and corporate

sustainability.

Sept 2011: AFRICA INVESTOR named Equity Bank as the Best Initiative in Support of SMEs and

the Millennium Development Goals.

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June 2009: Most Sustainable Bank of the Year in Africa & Middle East by FINANCIAL TIMES &

IFC a Global Award presented in London, U.K., for its responsibility in providing solutions to the

world’s most pressing issues & meeting those objectives in a financially viable way

2007 - Best Microfinance Institution in Africa in the MICROCAPITAL AWARDS based on the bank's

return, number of borrowers & size of portfolio, growth & expense ratio; a Continental Award

presented in the Americas

2006: Company of the Year Award (COYA) from the KENYA INSTITUTE OF MANAGEMENT for

being the best company in Corporate Planning Management, a Kenyan award presented in

Nairobi, Kenya

2004 & 2005 Trophies of Excellence from the KENYA BANKERS ASSOCIATION for being the

institution with highest number of qualified bankers; Kenyan awards presented in Nairobi, Kenya

9 CONCLUSION

From examining the context within which Equity Bank operates, it is clear that these conditions have had

a great impact on the strategic decisions undertaken over time as evidenced by the successful continued

successful performance of the firm and the accolades it has been accorded. There is therefore a close

nexus between the environmental conditions of the firm, its strategic decisions and subsequent

performance. Going forward, the company has a bright outlook as it continues to expand its operations

to meet the needs it identifies in its environment. This expansion will certainly require Equity to continue

fine tuning and adjusting its strategies, as it has before, to better exploit with the upcoming

environmental opportunities and challenges.

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