What awaits Equity in DRC as Germans leave

Opinion and Analysis

  

 Equity CEO James Mwangi (left) and Helen Alexander, a member of the management board of ProCredit Holdings, during the signing of a deal that will see Equity Group acquire ProCredit Bank Congo on May 26, 2015. PHOTO | SALATON NJAU

By GEORGE BODO

In Summary

• Equity Bank has to conquer a tough terrain fraught with low mobile penetration, a single inefficent credit reference bureau and no national identification system.

Equity Bank’s purchase of a 79 per cent stake in ProCredit Bank DRC marks the end of ProCredit Holding’s presence in Sub-Saharan Africa (SSA). The Frankfurt-based financial holding group has now exited all its five African businesses.

In 2008, its Angolan business was sold to Banco de Investimentos. In May 2010, Ecobank Transnational Incorporated (ETI) acquired ProCredit’s business in Sierra Leone. In April 2014, ProCredit Holding sold all of its shares in Banco ProCredit Mozambique to ETI.

In October 2014, ProCredit Holding disposed of its shares in ProCredit Savings and Loans Company Ltd Ghana, representing 96 per cent of total capital, to Fidelity Bank Ghana Ltd.

It seems the business of providing loans to micro-enterprises in Africa is no longer a priority for the German financial conglomerate (however, the jury is still out on the real reasons why it is exiting SSA).

READ: Equity runs ahead of rivals with takeover of DRC bank

With the acquisition, Equity Bank now becomes the first Kenyan bank to open shop in the DRC. However, it is not a unique phenomenon to the DRC’s banking sector, which is already dominated by foreign banks.

Out of the 18 commercial banks currently operating in the country, only two are locally owned: Banque Commerciale du Congo or BCDC, which is majority-owned by the State, and Trust Merchant Bank—which is majority-owned by a local investor.

The remaining 16 banks are foreign majority-owned. Additionally, Equity now becomes the 10th pan-African financial group to establish operations in the DRC.

So just how viable is this acquisition? It will prove viable, only if Equity’s shareholders are willing to wait just a little longer. It’s definitely going to be the proverbial ‘fly trying to move the dung uphill’ story.

The DRC is a tough terrain and Equity is going to be navigating four unique and difficult variables.

First, the DRC is an informal economy and back-of-the-envelope calculations suggest that up to 80 per cent of the money supply is held outside the formal banking system.

Financial literacy levels remain very low and only four per cent of adults have a bank account with a formal financial institution. Equity’s own success story in Kenya has been driven by (i) a well financially informed bankable population; and (ii) a regulatory driven financial inclusion agenda. The Central Bank of Kenya has been very open to new innovations in the alternative delivery channels space.

Cleary, these two conditions aren’t entirely present in the DRC. Additionally, mobile money in the DRC is proving to be a hard nut to crack.

World Bank statistics show that in 2013 mobile cellular penetration rate in the DRC was 42 per cent, well below the SSA rate of 65 per cent.

There is clearly an opportunity here, but don’t be fooled; the telecommunications sector continues to suffer from poor infrastructure and high operational costs to the extent that the cost of sending money through mobile phones would be slightly higher than sending through money transfer organisations.