BY Perry Munzwembiri
Though the economies of Zimbabwe and Kenya may be following different paths altogether, parallels can be drawn between the two Sub Saharan Africa countries. Like most African countries, the Financial Services sector largely remains virgin territory with huge upside potential for growth and development.
The World Bank /Global Findex database which provides indicators showing how people in around 148 economies save, borrow and make payments among other things, highlights that only 23% of adults in Africa have an account with a formal financial institution. Commonly cited reasons for this trend, according to the same report were a lack of sufficient money to use an account; cost of having an account as well as the distance from financial institutions especially for the rural folk.
It is against this backdrop that Kenya`s Equity Bank has shown its true genius. Founded in 1984 as Equity Building Society, originally providing mortgage financing for the low income population it grew steadily over the years, only to be declared technically insolvent in 1993. However, its rapid transformation thereafter from a growing micro-finance institution into a robust bank has been nothing short of a miracle. With around 8, 5 million customers, Equity Bank is the largest bank in Africa by client base. Laying a claim also to nearly half of the accounts in Kenya, the bank is the epitome of a financial institution fully embracing the ‘financial inclusion’ cause.
Back home, July 2013 saw the birth of Steward Bank after the acquisition of TN bank by telecommunications giant Econet Wireless Zimbabwe. The bank has since positioned itself as a mass-bank with a strong emphasis on providing banking solutions through technology.
Obviously the economic fundamentals in Zimbabwe and Kenya are dissimilar, and so too are their banking landscapes. Kenya’s population is nearing 44 million whereas that of Zimbabwe is around 13 million. GDP per Capita (average wealth per person) is $576 in Zimbabwe and $1,802 in Kenya according to the World Bank. On the banking front, the 17 commercial banks in Zimbabwe pale in comparison to Kenya`s 27, a testament of the fierce competition in the Kenyan banking space. Having said all this, can Steward Bank be to Zimbabwe what Equity Bank is to Kenya?
Steward bank has set itself an ambitious target of establishing a “top five bank” within the next three years. The bank seeks to achieve this by leveraging off the power, influence and technological capabilities of Econet Wireless to reach out to the previously unbanked population in Zimbabwe. The potency of this kind of approach was witnessed in October 2013, when EcoCash Save amassed 500, 000 account holders just two weeks into its launch. This goes on to show the potential for Steward bank to outpace other well established banks in the market in terms of customer growth, as it reaps the fruits of being the first bank in the country to have convergence with telecommunications.
Steward bank`s financials for the six months to August would have made for some grim reading after it reported an operating loss of US$24,5 million largely incurred through impairment of non-performing loans and advances, branch rebranding, upgrading of software infrastructure and staff recruitment costs. However, it must be noted that most of the non-performing loans were inherited from Steward bank`s predecessor, TN Bank. The bank`s continued efforts to clean up its balance sheet will ultimately pave way for it to effectively compete with other banks going forward.
Innovation is the hallmark of any successful commercial venture and businesses that have continually pushed the envelope in as far as innovation is concerned have gone on to reap immense rewards. In Kenya, Equity Bank has invested significantly in creating the necessary infrastructure for a robust agency banking model. For those in remote locations the sheer amount of money, time as well as the distance covered in order to access a branch can be particularly burdensome. To curb this problem, Equity Bank has authorised agents to offer selected services to clients on behalf of the bank. This has virtually done away with the need for individuals, predominantly those in remote areas to visit bank branches to transact. As Steward bank continues to grow, this could be a model it follows as it steps up efforts to reach those who are unbanked.
Accenture Research notes that future growth in the financial services is going to be hinged, upon four fundamental factors. Chief among them is industry convergence where companies in other industries, especially retailers and mobile telecommunications operators converge and leverage off each other to offer services to customers. In Zimbabwe this trend is already evident with the ties that Steward has with Econet Wireless. Giving further merit to this point, the International Telecommunications Union (ITU) estimates that total African mobile money transfers will exceed US$200 billion by 2015 accounting for close to 18% of Africa`s GDP. This just goes to show how mobile banking is fast becoming the new face of banking in Africa, and Steward Bank is favourably positioned to profit from this growing phenomenon.
However, optimism regarding indigenous banks is at an all time low given the high rates of indigenous banks that have gone under in recent times. The core reasons that have been cited by the relevant authorities have largely revolved around issues of poor corporate governance systems.
This could be the greatest challenge Steward Bank faces as it looks to emerge from the soiled reputation enveloping local owned banks. To this end, Steward must continuously establish structures focused on shoring up systems and policies in line with sound corporate governance principles.
The macro-economic environment presently being witnessed in Zimbabwe is challenging and the banking sector has been adversely affected. Deposits largely remain transitory in nature, the incidence of non-performing loans is worrisome and in the last financial year revenues were constrained. Going forward therefore, the operating environment in the country could pose serious problems for Steward`s continued growth. Coupled with the competition it will face from already established banks with solid banking models, its progress will therefore depend on how it navigates past the bottlenecks the Zimbabwean market presents.
The question begs therefore, Could Steward Bank be to Zimbabwe what Equity bank is to Kenya? Equity Bank is second only to Kenya Commercial Bank (KCB) in East Africa in terms of profitability, assets and regional spread. Together with its business model built around micro-finance where it has sought to fill in the gap left by mainstream banks , Equity Bank has established itself as a force to be reckoned with in the Kenya`s banking market.
With a strong capital base, competent management and the massive financial and technical clout of Econet wireless, Steward Bank is in good stead to be a major player in Zimbabwe`s banking industry. Dare I say, “Indeed, with time Steward bank can be to Zimbabwe what Equity Bank is to Kenya!”
The Writer is a student at the National University of Science and Technology (NUST), studying for a degree in Finance. he can be contacted at this munzwembirip[at]gmail.com also twitter @PMunzwembiri.