Getting a little closer to Wealth Management inclusion

With the brokerage division now operational under the new set-up and the business picking up, the last couple of weeks were primarily focused on the Wealth Management division and the preparation of the overall strategy for EIB.

The Wealth Management sector in Kenya is dominated by a handful of companies and the products landscape at the moment mainly consists of unit trust funds and managed accounts. This unsophisticated market however generates eye watering returns of 10 – 20% even for low/medium risk strategies like Money Market and Balanced Funds. The sustainability and reasons for these numbers can be debated, but in the meanwhile I sigh every time I think about what if I could put…

Given the generally high minimum subscriptions, the existence of upfront charges and redemption fees, high management and transaction based charges, etc., the unit trust funds as well as managed accounts remain primarily suitable for the medium and high income customer segments. EIB’s long term objective is however to create a product offering which will increase the wealth management inclusion for low income customers which are a big part of the Group’s 9m clients. This would allow them to achieve returns significantly better than the interest on deposits (which is one the few investment options these customers have) at affordable cost. Developing such product offering is not an easy thing though and administration if you don’t have own portfolio management capabilities in house and have to rely on service providers charging market rates…

A key insight which became apparent when calculating the business case and is closely related to the above was that even though EIB has the potential to tap the enormous clients base, the scale required in order to be profitable has to be really significant. The overall success of the business will depend on how well and quickly the new division will manage to engage the clients which in turn will would require education, training and buy-in from the staff in the branches whose main activity in the past was deposit taking and granting of loans.

So the journey for EIB starts with the launch of two unit trust funds which will be managed by external fund managers. We spend significant time talking to the key players on the market, understanding their capabilities and comparing bids. After some set-backs with the negotiations, we now have an agreement and are proceeding with all set-up activities. Exciting, but sadly, the few months regulatory approval timeframe will not allow me to see the launch of the funds completely through.

In parallel, we continue working on the overall strategy for EIB for the next 3 years across all business lines and are in the process of preparing for a few days offsite next week where the EIB team will have the chance to see a consolidated view and to challenge and refine the proposals – looking forward to this and also some free time in Naivasha (a beautiful lake one hour drive from Nairobi).

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Equity Investment Bank’s brokerage and capital markets collaboration with Exotix

Over the last few weeks I was advising EIB on the entering into a trade execution, research and capital markets transactions arrangement with Exotix LLP. The aim of the collaboration is to establish EIB as a key player in the investment banking market in Kenya and East Africa. Very happy to see this going live last week – link to the official announcement.

Playing a microfinance credit officer

My hosts at Equity Bank were very kind to arrange for me to spend some time at the branches so I can see “A day in the life of Microfinance” – live!

So full of excitement, but also slightly doubting that I will experience the real thing given the branches were in the center of Nairobi’s Business District, I found myself earlier this week sitting with the branch manager who walked me through the set-up, operation and the business he is doing. Almost by the way he mentioned the 100000 clients he has at the branch – quite amazing and a tangible demonstration of the scale of financial inclusion which Equity has managed to achieve. We continued discussing some of the main challenges he faces today, e.g. growing the loan book. The majority of his clients use various accounts to make deposits and payments while only a small portion is borrowing money. Or another issue with a specific client who regularly deposits cash at branches in the country and withdraws  from this particular branch in Nairobi. We quickly agreed this is a tricky one for many different reasons after which I went to see the share dealing and custody desk – highly relevant for the work I am doing at Equity Investment Bank.

Returning after half an hour to the branch manager’s office, Rufius (one of the credit officers) was already waiting for me with the news that we are going to do a loan appraisal in Kitisuru, an area almost (or maybe fully) outside Nairobi. Somewhere on the way there we picked up Simon (the borrower) from a Maasai Market where he was selling various things (which is one of his businesses). I was told that Simon had been a client of Equity for many years and is now applying for a new loan.  The appraisal process started immediately in the car – how is his business doing, what is he planning to do in the future, why, etc. Simon explained to me that he started with 300 chickens 4-5 years ago and through credits from Equity he managed to build some infrastructure (e.g. a water pump) and grow the number to 1000. Now he is looking to add a few cows and ca. 20 pigs.

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We went around the place and after some further questioning, Rufius indicated we are done. I politely declined a bag of eggs and we all drove back to the city – Simon back to the Maasai Market and Rufius to the office to prepare the approval recommendation (target turnaround time from microfinance loan request to disbursement is just 72h!).

At the microfinance loans desk in the other branch (just a few streets away from the first one, but also with 100000 clients!), I learned about the different loan products and could shadow the credit officer and see the variety of requests that were coming through: one year Ksh 20000 (~$230) loan for a marketing business (against a TV, a DVD player and a gas cooker as a collateral); Ksh 200000 renewal request for a business supplying goods to government authorities; KSh 12.5m mortgage request… not fully sure why this last one came through the microfinance desk, but in any case my initial doubts that I may not see proper microfinancing in action proved to be completely unjustified.

Public Holiday

It is Eid al-Fitr here today (or Ramazan Bayram in my own language) –  a Muslim religious holiday marking the end of the Ramadan fasting period. It is a public holiday in Kenya which was a somewhat unexpected (though very pleasant) surprise given only ~10-15% of the population is Muslim. So no reason to complain at all and a perfect opportunity to sit back and reflect on the last couple of days.

Before that however, it was time for some more serious shopping. Breakfast and dinner at home was getting very unexciting to say the least, so headed off to Prestige Plaza – a shopping mall recommended to me by one of the cab drivers. Apropos cab drivers: spending 2-3h a day in a taxi in the gigantic traffic jam which is Nairobi in the morning and in the evening (but also during the rest of the day!) gives a lot of talking opportunities and allows to get a decent insight on what is going on around. I can only say how impressed I was – the clarity and logic with which they see the country development and issues, and the moderate views they take on problems which have caused serious unrest elsewhere. We spoke about corruption, “fat cats” (the number of 4x4s on the streets is simply staggering), changes to the constitution, politicians, diversity (7 major ethnic groups and various other smaller ones, 69 languages) … While hardly moving yesterday, the driver showed me where the road goes to Kibera, part of Nairobi and the biggest slum in Africa.  A few minutes later it became clear that he grew up there, before his parents got support from a Microfinance Institution and the family was able to get out and bring the children properly through school.

There was a Masai Market at Prestige Plazza and it is a miracle I didn’t buy anything, given the persistency with which one is radiated on every step of the way through. I had to sign in blood to come back in a couple of days though … The supermarket at the mall turned out to be “Nakumatt”, one of the bigger chains here. This immediately reminded me of the harrowing stories which Veronique Su, the Regional Director of Swisscontact East Africa, told me over a “Welcome lunch” last week of the attack at the Westgate Shopping Centre last year and how the Nakumatt employees managed to bring visitors to safety or go back to the shopping floor where the attackers still were to get first aid materials for the wounded hiding in rooms at the back of the store.

So what happened at work recently: the Board and executive management were at an offsite to discuss Equity’s future strategies and set-up, i.e. only limited possibility for me to explore the couple of preliminary target focus points. Following another review on a JV arrangement that is being put in place, I am now trying to get a project manager to coordinate the set-up activities going forward. Also met a few times the General Manager of Equity’s Consulting Group and discussed how the business is being set-up, the differentiating strategy and how it fits to the existing core Microfinance and the new Investment Banking business lines. It is the perfect story overall with lots of potential and Equity is quickly executing – everyday new people are joining and things are shaping up in a very entrepreneurial way. Taking yesterday as an example: while discussing the Custody business with the new IB CEO and the Head of Wealth Management, we somehow went into the topic of office space planning. Walking around for some time and looking at the offices and trying to figure out which team could sit where and whether it has to be separated for Compliance reasons, it became obvious that this needs to be done in a more structured way also taking into account the expected growth over the next 12 months. It took a while to understand who in the Bank is looking after Facilities management and Compliance, but 2h later we were all sitting together in a room with a floor plan and a white board in front of us, drawing partition walls and door locks, debating how many meeting rooms will be needed, moving printers around and ensuring people have access to the kitchen… The ball is now rolling and I am told in a week time things should be in place to welcome the next IB staff member joining the team.

At the beginning – strategy, simplicity and consistent execution

Landed in Nairobi and focused on understanding what, where and how as well as arranging some basics for the 3 months stay. Needless to say the few days are simply not enough to embrace such a vibrant environment. It’s just the start though!

Spent my first two days in the office. Alex, General Manager for Asset & Wealth Management, took me on a 100mph ride though Equity Investment Bank’s set-up, his perspective of what is going on since he joined 6 months ago and where is he driving the division. Strategy.

Then meeting people – HR, Treasury, IT, Finance, Business consulting, industry experts…. Various which names and faces I recognise from reading materials about Equity Bank. It just took a knock on the doors. Open and simple.

A short time to arrange a badge, email account, laptop and get everything activated. I’m on!

Just a moment later, sitting down with the Director for Strategic Partnerships, Investments and Initiatives – as he put this, I was joining at a very interesting time with so much going on. Went again through the more deep background of the operations and what Equity Investment Bank is currently focussing on. Business ideas, operational challenges, organizational questions. Strategy again with impressive consistency and drive towards the bank’s inclusiveness mission.

Almost seamlessly… our discussion went into narrowing down what I could be doing while at Equity. Latest now I must fully agree, there is quite a lot going on… So dedicated the most of the Friday on reviewing proposed JV arrangements which follow directly the recent steps undertaken by the bank to build up capabilities in the market. Consistent execution.