Equity Bank, to those operating in the larger microfinance sphere, is a well-known, successful bank serving low income, previously “un-bankable” folks in Kenya. Its successes have been innumerably lauded over the years:
- The company was on the verge of collapse by the 1990s.
- Non-performing loans made up 54% of their portfolio.
- By 2011 it was Kenya’s second-most profitable bank with a pretax profit of $150 million.
Much of the credit is due to CEO James Mwangi who arrived in 1993, intently focused on ramping up the bank´s microlending strategy. Individuals with deposits of less than $200 and little in the way of collateral were targeted and the ride took off from there.
What is interesting about Equity Bank to those I am sure outside of microfinance, and even to those within, is Equity’s success was built not solely on the age-old, concepts of sound banking, but rather human/social relationships and their complex interplay inherent to Kenya and intimately understood by Mwangi.
Societal norms and shame … those are at the heart of Equity’s success, two concepts that executives have not shied away from admitting either. In the developing world credit bureaus are scarce and credit records even scarcer. As such, as a lender, how do you control for the risk of non-repayment of loans? In this instance, you rely on culture.
Social standing and societal norms in East Africa are such that shame brought upon a family or village for the non-repayment of something like a loan is so great that banks like Equity are able to “safely” (nothing is safe, safe in banking) loan without knowing much, if anything at all about the client’s credit history. And with an unbanked population of roughly 326 million adults throughout the continent, there is plenty of demand to be found at every turn.
Equity recognizes this and has expanded even further utilizing what is called agent banking. This is a process in which a storefront will be paid a commission by the bank to act as a remote teller of sorts thus increasing “branch” access to often hard to reach, rural areas. The bricks and mortar business of banking is pricey, and while branches still continue to proliferate, banking in the developing world doesn’t have a shot at reaching the folks outside major cities without agent banking and mobile banking facilitating outreach. Equity knows this well and counted on roughly 4,000 agency bank locals in March of 2012. A full 1/5th of its transactions are now being done through agents.
Equity is a fantastic example of a business that understands its customers better than any outside, theoretical model could attempt to replicate. It would be great if we in the larger development arena could pay more attention to home-grown successes like Equity.