Old Mutual lines up to buy Faulu as MFIs cut ownership

Faulu Kenya staffer Miriam Gatheca Nganyi displays the financier’s logo during the launch of its Popote mobile phone banking solution in Nairobi in 2010. Old Mutual is eying a stake in Faulu as the micro lender seeks a strategic investor. FILE 

By BD REPORTER

In Summary

• Old Mutual is keen on getting a piece of Faulu’s business as it pursues the financial supermarket model, according to sources.
• The sale will allow Faulu Kenya to diversify its ownership and meet the Central Bank of Kenya shareholder limits.

Old Mutual is seeking to acquire a stake in Faulu Kenya as the micro lender seeks a strategic investor to inject cash and help it comply with set shareholder limits.

Source close to the deal told the Business Daily that Old Mutual is keen on getting a piece of Faulu’s business as it pursues the financial supermarket model, which includes trading shares, selling insurance products and offering loans.

The sale will allow Faulu Kenya, majority owned by non-governmental organisation Food for the Hungry International (FHI), to diversify its ownership and meet the Central Bank of Kenya shareholder limits.

The limits bars investors who are not banks, foreign finance companies or the government from owning more than a 25 per cent of local banks.

The micro lender is also expected to raise cash from the share sales that will most likely involve the creation of new shares rather that the exit of current shareholders to accommodate the new investors.

“The board of Faulu is evaluating the bids and the directors will decide whom to sell the shares to early next month,” said a source close to the deal who spoke on condition of anonymity, adding that more than 10 investors had approached the micro lender for the share sale.

Faulu became the first microfinance institution (MFI) to gain permission from the Central Bank in May 2009 to accept deposits for onward lending instead of relying on donors and commercial institutions to support its loan book.

Since then, the CBK has licensed six deposit-taking MFIs, including Kenya Women Finance Trust (KWFT), Uwezo, Remu, Rafiki and SMEP.

The CBK had given the MFIs until 2014 to keep ownership at a maximum of 25 per cent, sparking a rush among their top shareholder to dilute their stakes.

(Read: CBK to vet corporate ownership of banks)

SMEP in October kicked off a share sale that saw it raise Sh266 million against a target of Sh1.6 billion, which cut the stake of the National Council of Churches of Kenya (NCCK) to 73.72 per cent.

The NCCK, which fully owned the micro lender, had also been given until 2014 to keep its ownership to a maximum of 25 per cent in SMEP.

A fully subscription could have seen the churches stake fall to 31.8 per cent, which will prompt another share sale. KWFT has opened talks with a number of investors to cede a 25 per cent stake to a strategic partner by July.

These micro lenders last year recorded sharp profit growths as they continue to reduce reliance on expensive borrowed funds in favour of cheaper deposits for profit growth. Faulu, for instance, saw its net profit rise to Sh58.2 million last year compared to Sh2.08 million in 2011.

For London-listed Old Mutual, which fully owns the Kenyan unit, the purchase of stake in Faulu will be in line with its global operations that has insurance, banking and asset management businesses spread across four continents.

It has also launched a series of overseas takeovers aimed at reducing its dependence on South Africa where it owns the country’s fourth biggest lender, Nedbank.

In Kenya, it has an insurance arm, asset management division and stock broking division, which it acquired with the 2010 buyout of a 70 per cent in Reliable Securities.

Integrated financial services models are increasingly taking route in Kenya with commercial banks leading the way in financial supermarket models.

Equity Bank, NIC Bank, Co-operative Bank and CFC Stanbic are fronting this model, which has come under scrutiny in the US in the wake of the financial crisis.