Category Archives: Jamii

When Bankers own Banks

Managers and employees are often given a chance to become part owners in the banks. This ‘aligns their interests’ with the institutions and gives them an added incentive to help the institutions do better as it individually rewards them for the good performance. The incentives are usually facilitated through employee share option schemes (ESOP’s) which convey some tax benefits and discounted buying prices. Typically, in conventional ESOP’s,  there a general pool for all employees and another for senior managers.

The method of calculation and award of these benefits is done in secrecy, usually by board committees. This is to ensure the privacy of employees and security of their families, but one outcome is that any revelation of these perks sparks a lot of interest.  In fact, you sometimes find a higher level of disclosure of compensation practices at listed banks in Uganda and Rwanda, than you do with Kenyan ones.

Stanbic Uganda compensation guide

Consider these examples:

CBA: Shareholders include a ESOP who own 2.5%.

Chase Bank: Employees of the bank own  4.3% of Chase through an ESOP. Elsewhere a bonus to the former chairman was one of the deals that the auditors queried in 2015.

Cooperative Bank: Stories about shares to bank management and directors first surfaced in 2008, ahead of the IPO in which bank staff got 9% of the shares. and has been on twitter this year. The company’s accounts show that the CEO owns 2% and the bank links the story to a smear by a former CEO who has an ongoing tax case with the bank.

Equity Bank: CEO owns 4%, while an employee ESOP owns about 3%.

Jamii Bora:  The CEO own 1% and is also an investor in the largest shareholder of the company.

Family Bank: In 2011, shareholders voted in an ESOP for managers and a transfer of 1 % transfer of shares of the (then-new CEO , which he purchased at a discount as part of his employment package.

Housing Finance: Has has an ESOP since 2006 that’s open to  all employees: Eligible employees pay for the units by cash at a price determined by Trustees either in full or by instalments until price is paid in full. The Unit holder is not allowed to sell, transfer or otherwise dispose of Units registered in his name to another Unit holder or to any third-party whatsoever.

KCB:  When KCB CEO Joshua Oigara declared his wealth (assets of Kshs 350 million comprising land, buildings, motor vehicle, cash bank balances and shares) and salary (with allowances that totaled  Kshs 4.9 Million a month),  last year his statement added that  “..My public declaration is driven by the need for us as private sector players to initiate greater transparency. Kenya is bleeding from corruption mainly driven by secrecy in organizational operations..”

$1 – Kshs 101.

Uchumi: This Is It

It’s hard to believe that I’ve been writing about Uchumi Supermarkets for as long, as I’ve had this blog – about ten years. The company seems to go through a cycle every few years of capital injection, expansion & new store openings, shareholder reassurance, a few years of smooth sailing, followed by diminishing stocks of products, management change (Suresh Shah, Titus Mugo, Kennedy Thairu, Masterten-Smith, Jonathan Ciano), restatement of accounts, change of auditors, restructuring of debts etc.

At the 2010 special meeting of shareholders (during a receivership period), Kenya’s solicitor general (speaking for the government, which had bailed out the company) said nothing was fundamentally wrong with Uchumi when it collapsed, just bad governance.

But this time, it hopes to have put the past behind, and things are now looking up again for Uchumi. Its CEO, Julius Kipngetich, was on a TV blitz last week where he recapped the position that the supermarket is in and the way forward. Uchumi is now lean after laying off 2,300 staff, closing its unprofitable Uganda and Tanzania subsidiaries as well as 7 branches in Kenya, one of which was in a mall (Taj) that was going to be demolished for expansion of a highway. They are in the process of selling non-core assets (3 land properties), re-negotiating with suppliers to settle debts and (in exchange for some equity) resume supplies, and seeking a new strategic investor.

Some of these have now advanced recent announcements that most suppliers have agreed to convert some debt in exchange for  about Kshs 1.8 billion of equity in the company. Also the Ngong Road Hyper branch has been sold (but Uchumi plans to continue occupying it as a tenant) and just this week the Visa Oshwal Business Community, who comprise key suppliers,   agreed to resume supplying stocks, with one of them ending a lawsuit to wind up Uchumi.

Uchumi’s latest restructuring is happening is at a time when supermarkets are ‘apparently’ booming in Kenya. Nakumatt just opened its 61st stores, Naivas and Tuskys are growing, despite the family battles they have, Choppies (of Botswana) has taken over Ukwala and Carrefour has just opened at The Hub in Karen, in upmarket Nairobi.

Uchumi basket

Banks like UBA are ready to support. KCB has been a long terms banker, and Jamii Bora banks is the largest shareholder (15%) of Uchumi, closely follow by the government (14%).

Uchumi stores now have almost all products back on the shelves, but with some familiar brands still missing, for now.  As the CEO, said in one interview, Uchumi aim to serve middle class consumers, who want to buy Kenyan products .

In the next three months, they hope to narrow down a strategic investor to be the anchor shareholder of Uchumi, from a pool of bidders that were invited privately.

Microfinance Moment

A peek at the micro-finance institutions sector (MFI) the cousin to the banking sector. During the Africa -Middle East Regional micro-credit summit held in Nairobi in April 2010, several participants also exhibited their MFI products and services

Services to MFI
AMFI the association of microfinance institutions – Kenya offers capacity building, industry lobbying, performance monitoring and linkages to members. On a larger international scale you have the UN! Doing this through the UN Advisors Group
– Bridging the branchless banking gap by CGAP
Branchless banking equipment includes devices from
ingenico and craft silicon and a micro-payment (mobile and online) from Impala to deliver low cost financial and transactional services

MFI product advisory services from MicroSave as well as research and capacity building in micro saving and product delivery techniques – they have advised Equity Bank, Family bank and consulted on MPesa formulation.
Hedging for MFI’s to eliminate currency risk from MFX Solutions
– MFI support from the Grameen Foundation has funded $16 million to MFI’s in Ethiopia, Kenya, Ghana and Nigeria and supported Applab partnership with Google) for information to rural Uganda farmers and Ghana to help new expectant and new born mothers access medical care via mobile phone.
Management services, and technical advisory to MFI’s from ACCION
– Private finance to MFI’s from Oiko Credit examples of which was Kshs. 71 million to Githunguri Dairy Farmers Society as well as to Uganda Women Finance Trusts, Nyeri Tea Growers, Daystar University (partially supported by Grameen). Also another from Unitus which raises funds & grants, advises & arranges capital to grow innovative MFI’s 23 in 9 countries worldwide including Jamii Bora Kenya and SKS India.
– Loans in local currency in Africa from BlueOrchard to established MFI’s (minimum $1 million total assets, and at least 2 years old)
– MFI lending cost comparison (APR based) by the MFTransparency (report covering 90% of Kenyan MFI’s will be on their site in a few weeks)
Software to administer MFI loans from Loan Performer a highly rated package.
– Recycle your cell phone into MFI loans with Chiapas

Unique products
Matatu loan insurance accessible to members of the Jitegemea credit scheme
Micro health (Bima Ya Jamii), home beautification and other loans from SMEP and their loans are repayable by MPesa
Medical health (Faulu Afya) plans from Faulu Kenya which can provide inpatient cover up to 1 million (~$13,000) as well as from AAR Credit to pay for AAR Health packages in low installments
Micro insurance from microensure. A similar product on livestock insurance was featured in the Economist recently
Goat meat and poultry boiler accessible to Yehu MFI (operates at Kenya Coast
Livestock trading, micro health, business acquisition and other loans from KADET – The Kenya Agency for the Development of Enterprise & Technology, which is an affiliate of World Vision.
– The world famous Money maker water pumps from kickstart helping small scale farmers out of poverty
Venture capital (equity partnership loans up to 150 million or ~$2 million) as well as contract financing and industrial finance from Fusion Capital targeted at SME’s (not MFI’s)
– Various loans for women entrepreneurs from the PAWDEP – the Pamoja Women Development Program
Start up loans from elmseed ($2,000 first year, 10% simple interest) small loans, big futures, and Kenya government Women Enterprise Fund and Youth Enterprise Development Fund borrowing is secured by group collateral)

Village savings & loan associations (VSLA) from CARE introduces more people in Africa to financial services than any other international organization

Local Banks
– Citi whose Citi Foundation has lent $80 million to MFI’s over the last 11 years in 88 countries in areas like colleges and neighborhood revitalization
– Co-Op
Equity bank with Vijana business loans targeted at members of youth groups as well as fish loans uvuvi biashara to finance nets, cooling equipment, boats etc.
– KCB with bankika a business package targeted at young entrepreneurs

New Banks
Jamii Bora Bank which bought a small bank in a reverse merger claims that with its over 200,000 members is the largest MFI in Kenya.
KWFT – the Kenya Women Finance Trust Deposit that was licensed this week deposit taking MFI by the Central Bank of Kenya offers startup funding and LPG (gas) among many other loans. KWFT which claims over 334,000 members slots in as a mid tier bank

Bank to acquire micro-financier

Trying to fathom how or why Kenya’s smallest commercial bank City Finance would be interested in acquiring micro-financier Jamii Bora which has over 170,000 members.

let’s merge

Nevertheless the Kenya Finance Minister has cleared the way for the deal to go through with Jamii Bora who are in the money, having recently repaid Acumen Fund their $250,000 loan (~Kshs 19 million) and completed a substantial portion of their housing project in Kitengela.

No SWAG from Safaricom

There will be no SWAG from Safaricom at their annual general meeting that will be held on August 19 – so the company boldly proclaimed in a media briefing on Wednesday.

Even while projecting that just 30,000 of their 830,000 shareholders to turn up, the company budgeted a total Kshs. 352 million (~$4.5 million for the event) which they cite as being too expensive. They even have compared the cost of the day’s events to be the equivalent to one month of all their leases, of 1 ½ months worth of administrative expenses – all channeled to a one day event!

Yet two things are clear:

1. Much of the burden is regulatory: They estimate it will cost Kshs. 240 million to print and circulate an annual report (Co-Op Bank, the most recent listed company has a 150 page report). Dividend will be distributed to shareholders, and they estimate that it would Kshs. 73 million to send these by EFT to a fraction of investors. Truth is most dividends and paid by cheque, very few by EFT.

2. SWAG generosity is not that expensive (but these are tough times): Kshs. 40 million for shirts, lunch, caps, and umbrellas is not much money for the company to spend, even if they don’t provide transport to the venue (about 10 kilometers from town) . However these are cost-cutting times even at the largest companies. A few years ago, Nation Media Group (NMG) would hire buses to take their shareholders to their Nation AGM at their premises (beyond Jomo Kenyatta Airport) where they’d would have lunch and get some SWAG items. This year’s event was at KICC in the middle of town (no transport costs) and shareholders only got copies of newspapers with their buffet lunch.

For Safaricom to take a harsh stance on SWAG is rather cold unless the directors and manager also adopt a similarly Spartan lifestyle e.g. no water for directors at the meeting and no breakfast /giveaways for media and institutional investors when they announce quarterly results. Still I expect a few thousand shareholders to turn up, not believing that there will be no SWAG

Hi Tech Cost Cutting: Safaricom is combating the high cost of annual general meetings and investor relations through technology

1. Annual reports will be downloaded from their website, which is probably the best in Kenya among NSE listed firms in terms of communicating with shareholders. It is updated constantly, even on the same day with CEO briefs to media and institutional investors.

2. Use M-Pesa to pay dividend. Odds are that most of their local 830,000 shareholders are also their (13 million +) customers; many will not have bought shares since the IPO – meaning their dividend cheques are perhaps just 20 shillings $0.25), so by employing M-pesa this will be a much cheaper channel than cutting and posting cheques for such small amounts.

The logistics of doing this are quire significant, it will involve partnering with the company registrar, perhaps the central depository settlement corporation (CDSC), and M-Pesa agents, to ensure each person gets their 10% dividend payment in the correct formula (a reversal will be a nightmare). Once this is done it will be an eye-opener for some of the other companies with large shareholder bases +50,000 including Kengen, KCB , Kenya Re , Mumias , Co-operative Bank and Kenya Airways who had a their loss-making year in a decade.

Other Development: The media release media release (PDF) also mentioned two recent developments at Safaricom:

1. Investor road show where they visited institutional and fund investors and talked in detail about the company in London (T Rowe Price, Genesis Investment, Charlemagne Capital, Marshall Wace, Renaissance Investment, Eton Park Capital, JP Morgan Chase, Aberdeen Asset, Henderson Global , ROBECO Group, Cyrte ), New York (EMS Capital, DWS Scudder, Morgan Stanley, Galleon Partners, McKinley Capital, Harding Loevner, Goodman), Boston (State Street, Wellington, Fortis ), Johannesburg (Stanlib, RMB, Visio) and Cape Town (Investec, Allan Gray , Coronation, Fairtree)

2. Their investment with Jamii Telecom which will include partnering in use of fibre in metro areas , and resale of excess capacity on TEAMS and Seacom, among others.

Read also ratio magazine Dont Come to Safaricom for Lunch post