Once described as a bad lender due to mounting bad loans by a former
CEO, the firm has transformed into an innovation powerhouse in East
Africa. PHOTO | NATION
Last Saturday, the Kenya Commercial Bank did a first —
conducting a free health clinic in Baringo County — not for wananchi but
for livestock. The initiative, the lender said, is aimed at boosting
commercial viability of livestock in the semi-arid county.
The
free health clinic was carried out through the bank’s foundation and in
partnership with the Kenya Veterinary Association, the University of
Nairobi’s Faculty of Veterinary Medicine, the university’s Veterinary
Students’ Association and Baringo County.
While
the initiative seems out of step with the core business of a commercial
bank, KCB chief executive Joshua Oigara says this is a new thinking
that is driving the lender’s transformation as it seeks to become one of
the biggest financial institutions in the region.
“The
biggest thing we (KCB) want to do is to transform the country. We must
look beyond the profits we are making to orchestrate change in those we
do business with,” Mr Oigara noted.
The
free health clinic is part of the 'Mifugo ni Mali' project in which the
bank has committed Sh1 billion over the next five years to promote
farming in arid and semi-arid areas.
The
bank says the initiative is driven by the realisation that increased
productivity in rural areas will significantly contribute in propelling
the country to the middle-income level.
The
lender chose to focus on livestock farming because it is the most
labour intensive activity along the value chain. Analysts give livestock
farming a multiplier effect of 11.
VIRTUAL BANK
Improving livestock farming is one of the many ways the bank intends to use to drive its dominance in the market.
Two
weeks ago, KCB achieved another first by launching the KCB/M-Pesa
account — not a nobility on its own with M-Shwari having come before.
However, the possibility of borrowing a Sh1 million via the phone
without visiting any bank to sign any document makes the product stand
out.
Already KCB says it has had its
first customers for Sh500,000 loan through the mobile platform. The new
initiative breaks the almost cardinal rule in banking of “no lending
without security”.
“People who repay
my money don’t do it because they have securities. No. It’s because they
have the capability to make money. With KCB/M-Pesa then, I will aim at
lending on repayment ability,” Mr Oigara says.
The
bank has set its sights on about 10 million customers with a target of
one million in the first month. By close of the first week, the bank
says, it had realised a third of the one-month target of customers with
projection that the goal could be attained a week earlier.
The
product is an upgrade to M-Benki launched in 2013 which allows
customers to open an account using M-Pesa details without the need to
visit a physical branch. By December last year, M-Benki accounts had hit
one million with users borrowing over Sh589 million.
“It’s about dignity in financial access and democratisation of credit,” Mr Oigara says of the motivation behind the innovation.
“The
fact that a person can now borrow Sh50 to pay bus fare to work or
Sh1,000 to pay for electricity without reaching out to friends is in
itself liberating.”
The innovation
also reflects a change of heart by the banking industry, which had
initially opposed mobile money. The change of tack is attributed to the
realisation that mobile technology is a key driver to financial
inclusion in Africa. It has been touted as the key to solving the high
cost of mobilising savings, which currently requires financial
institutions to set infrastructure and deploy human capital. This end up
making the cost of credit expensive and out of reach for the majority
of the population.
SOCIAL WELFARE
With
a wide range of credit — between Sh50 and Sh1 million — KCB says
another unique attribute of the product is its flexibility of the
repayment period. The borrower can pay between a month and three months,
which is not the case with other products in the market.
Last
year, in another partnership with Safaricom, KCB launched Biashara
Smart to help small and medium-sized firms to access finance with value
addition such as website domains, talk time and text message services.
“The
biggest stumbling block to entrepreneurship is in infrastructure, which
is why we are in the road annuity programme,” Mr Oigara told Smart Company on why the bank is one of the two that came out to fund the government’s road construction programme.
Last
year, the government initiated the road annuity programme, which aims
to double tarmacked roads from 14,000km to 24,000km in the next three
to five years.
Under the model,
contractors will access loans guaranteed by the Treasury from banks,
enabling them to design, construct and maintain the roads. The Treasury
will repay the loans in equal instalments (annuity) over eight years,
starting from the time the road project is completed.
The
banks are expected to lend up to Sh178 billion to fund the entire
10,000km of roads expected to be completed in 2017. KCB pledged to
allocate Sh20 billion. Co-op Bank said it would give Sh5 billion.
In
January, the bank signed a deal with the government that would see the
lender earn millions of shillings disbursing cash to the poor under a
social welfare programme. The plan was to begin this month.
Under
the deal, KCB handles cash transfers amounting to Sh29 billion in the
first year channelling them to about 400,000 orphans, the elderly, the
disabled, and poor urbanites.
Fresh
from delivering Sh1 million through the phone, KCB is working on
building three-bedroom houses, each going for Sh1 million, under the
government’s programme of affordable housing scheme.
The
bank says negotiations are already underway between the bank, National
Housing Corporation, IFC and other organisations to deliver “the single
largest source of wealth for families.”
But
there is also the small matter of local banks playing second fiddle to
foreign banks in financing big projects, especially government
initiatives. Standard Chartered, Standard Bank and Barclays Bank have
been at the forefront in syndicating loans to government and the private
sector.
STREAMLINED OPERATIONS
“Size
of capital has been the biggest problem,” KCB CEO says “which is why we
will be tapping the international market for a $250 million loan.”
The
raft of innovations by the bank marks its complete turnaround. It was
once described by it former chief executive, Mr Gareth George, as bad
bank on account of a huge bad loan portfolio, which threatened to bring
down the lender whose majority shares were held by the government.
The
bank has had to struggle with the fact that it was essentially a
government-owned institution until very recently, especially in dealing
with human resource.
“The bank has since changed,” says Mr Oigara.
The
workforce has changed with over 65 per cent now aged below 30 years and
less than 10 per cent having been with the bank for more than 10 years.
KCB hired International consultants McKinsey & Company in 2011 to
streamline its operations.
“That (human resource) problem doesn’t exist anymore,” Mr Oigara says.
NUMBERS
Bank attains important milestones
Sh16.8 billion after tax profit in the year ending December 2014
Sh284 billion loans book
244 branches regionally
962 ATMs and
10,102 agents
4.14 million customers
Sh7.8 trillion money moved in 2014, 1.5 per cent of Kenya’s GDP
Sh178bn
What banks would loan contractors in plan to build 10,000kms of road. KCB has committed Sh20 billion
Sh1bn
Money KCB has committed over the next five years to boost farming in arid and semi-arid areas
Sh1m
Maximum
loan customers could get from KCB via mobile phone through the lender’s
KCB/M-Pesa account. There is no need to visit a branch
500,000
Loans in shillings that some KCB customers have already applied via their handsets
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