Monthly Archives: June 2010

Agency Banking and Micro-Savings

Banking Hall Woes: Last week I spent about 6 hours in 6 different banking halls, trying to deposit or withdraw cash, make cross-bank transfers, utility payments and complete other bank transactions. Some observations:
– Banks with several empty ‘teller’ windows even as customers queues get very long
– Employees who sit at the front desk but don’t serve customers as they do back office transactions, reports & reconciliations
– Disinterested employees who’d rather gossip in vernacular than serve customers
– @kainvestor tweeted: it takes 1 hour, 2 branches and 4 tellers to get one foreign bankers cheque done at #StanChart. Still waiting #fail
– Customers who ‘book’ places in the queue. As the queue shortens near the front, they walk up from where they have been sitting and edge back in front of the person, who they had queued with thirty minutes earlier
– Older banks like Barclays as you to bring a passport photo and get a referee signature to open an account, while new banks like equity bank and family staff will snap your picture with a digital camera.
– There are no more developments in e-banking being rolled out in Kenya; new bank – customer interface deployments are in the areas of phone/mobile/m-banking
– Despite the millions of masses on mobile banking, the bulk of business in Kenya is cheques-based. Cheques remain awkward, prone to errors, and are resented as a form of payment as recipients have to wait for up to four working days to get money from the date they present their cheques. Assuming there are no errors, clear over four working days.
– From a Central Bank of Kenya 2009 supervision report you can get an idea which banks halls are likely to be crowded going by their number of deposit customers: Equity Bank is No. 1 with 4.0 million followed by Co-op bank with 970,000, KCB 751K, Barclays 748K, and Family 574K. Least crowded may be banks like City Finance 654, UBA 832, Development bank 1,022, Middle East 1,462, and Equatorial 1,981.
(images from Afromusing’s post on how to get Safaricom 3G on your ipad)

Mobile money banking solutions Banks have tried to minimize the prevalence of queues, usually longest at month ends rather than mid-month, by offering alternative channels such as mobile banking and ATM facilities. A few years ago, the push was to develop Internet-based banking, but that seems to have been set aside by the industry to focus on (mobile) phone-based avenues.
Last month also brought M-kesho, a partnership between mobile giant Safaricom and a leading bank Equity Bank. This one was very notable as it was marketed as one in which Equity Bank account holders could earn interest on money saved through their mobile phone – and this has been widely written about widely:

From the blogs – Idd Salim. Nothing new, Zain Zap has done this since 2007, but Safaricom is like Man U. They have ‘refs‘ who favor them game after game and win battles that are not even their own.
– Kainvestor: Too complex and not particularly new
– Rombo , Safaricom’s 17,500 M-Pesa agents will now operate as part of Equity Bank (account opening, withdrawal/deposit) which has 80 branches countrywide
– Majibu: (after M-kesho) Safaricom can do better – by working with local developers and allowing them to develop on their platform. Safaricom needs to learn from the likes of Apple, the success of the iStore is because each developer is given an equal chance.
– White African: As others have pointed out, this isn’t exactly groundbreaking and new. Why is it big then? It’s big because of who is doing it: the giants of the banking (equity) and mobile sector (Safaricom).
– @wanjiku suggested that her bank, Family bank should partner with Zain

Others – A comment at the CGAP who advised on the creation of M-pesa noted that hopes that system failures that plague m-pesa will be a thing of the past
– Equity Bank’s CEO made one comment on TV, about how this made sense as they (Equity) had launched a mobile banking application (EAZZy), but they found over time that could not compete with M-pesa so were folding it to join M-pesa.

More mobile variants: What does that mean for other banks? Despite @wanjiku’s earlier suggestion Family Bank went ahead and signed with Safaricom, not Zain, upgrading their existing mobile application into one called existing mobile banking application into new called Pesapapwhich also allows transfer from account to/from m-pesa and mobile service providers Cellulant rolled out at the same time with one called lipuka

Other thoughts on agency banking Vis a Vis m-kesho – Safaricom has very subdued brochures about M-kesho – with which one can transfer funds to from their bank account at Equity and all the benefits (micro savings) and product hype is by the Equity side. Odds are that most of Equity’s 4 million customers are M-pesa account holders already
– M-pesa cash has been held in trust by CBA Bank since its inception. Will Equity angle for a piece of that?

Enter Agency Banking: The sub-text of M-kesho and other variants is the emergence of agency banking in Kenya, a process endorsed by the Government of Kenya to bring more banking services to more of the (unbanked) population. Agency banking is supposed to take customers out of the bank halls and out to kiosks and villages; as @Rombokins noted, Equity Bank scales up from having 80 branches, and can now (potentially) sell its products through 17,000 agents of M-pesa.
CBK recently published their Agency Banking Guidelines which include provisions on what agents can and can do

Can Do: – Agents can be limited liability companies, cooperative societies, parastatals, trusts, partnerships or individuals. Agent applicants are judged based on their network (number of agents per province), services to be provided, anti-money laundering procedure, strategy and financial projections envisioned from agency business. Other factors considered will be company registration documents, audited accounts, availability of funds, bad credit reference, reputation, unclear source of funding, or criminal prosecution – which are some of the reasons for an application to be struck out. Also a license can be withdrawn if an agent is loss making, or a sole proprietor passes on
– The agent may provide services to multiple institutions (no contract between institution and agent shall be exclusive and an )
– All agent settlements must be in real-time
– Agents must receipt all transactions
– Some of the services agents can perform include cash deposit/withdrawals, loan repayments, bill payments,
Salary payments, debit cards, collection of mail

Can’t do: Faith-based, non-profit, non-governmental organizations are not eligible to engage in agency banking
– Agents may not use such names as ‘bank’, ‘finance’ in their brands
– agents may not charge customers for services directly
– Agents may not transact when the system is not operating (e.g. m-pesa downtime?)
Agents may not open accounts, offer guarantees, or appraise loans
– agents may not undertake cheques deposit or encashment (cash only) and may not transact in any foreign currency

Summary: Banks still require that customers come to the halls, for most services, but with agencies can they get served better (and perhaps cheaper) elsewhere? The use of dealers and agents helped transform the telecommunications sector in the span of a decade – from having a monolithic giant (Kenya post & telecommunications) where Kenyans had to queue and buy lines, pay for equipment and other bills (and which served ~100,000 customers) to now where customers able to do the same at kiosks all around the country (serving 20 million customers) Can banks mirror the phone model of growth through agents? It’s a tough call as the safekeeping of money or the incurring of a debt (by taking a loan) is one that calls for caution on the part of the customer.

But taking a loan is a sophisticated process – as most customers need to ask the loan officer what rate am I getting? what is the payback and installment? Even if someone is desperate and signs for a loan without reading an agreement, or swipe a credit card readily, they will over time come to learn the cost of transacting as they will read and review documents, especially if they feel they are being shortchanged. It seems that lending is beyond the training and capacity of agents – and the CBK has recognized this by limiting them to being a medium for repayments. So if you want to get a loan with m-kesho, you get that information from a (trained) Equity loan officer, not an M-pesa agent.

Finally, micro-savings or savings by poor people is more about the principal, not interest. i.e there has to be a mandatory obligation to save, which is difficult for someone trying to build up savings to revoke. E.g. group schemes, chamas, investment clubs, SACCO’s have an obligation to save that binds its members through a social bond of their mutual upliftment. An obligatory commitment is also a factor in larger savings programs like mortgages or pensions.

Pan African Banking

Part II of Ecobank 2010 AGM

After the Ecobank AGM in Nairobi on June 11 for shareholders only, there was a media briefing with Arnold Ekpe – Group CEO, Kolapo Lawson – Group Chairman, Tony Okpanachi – Managing Director Kenya and the other executive directors of Ecobank.

At the session were journalists from several African countries including Ghana Nigeria Rwanda Uganda Zambia, Kenya and various media houses including AllAfrica asked questions of members of the board, mainly answered by the Chairman and the Managing Director. Questions were asked in English and French and the (multi-lingual) directors answered each in the language asked, with the CEO summing in English sometimes.

A lot of the same information given to the press was also disclosed to shareholders during the AGM, and at some point, the CEO asked business journalists to read the actual full annual reports, not just the abridged versions, as a lot of the answers were there.

Media Q&A excerpts

Explain African strategy, especially in war-torn countries?

Ecobank serves African countries and African countries always have needs for financial services. E. g. The Democratic Republic of Congo (DRC) can be Africa’s richest country, it needs financial services and Ecobank has invested about $30 million in telecommunications and small & medium enterprises (SME’s). They understand the risks they face such as non-payment of loans and mitigate those risks. Also, wars can’t last forever, and they saw this in Liberia where they were the only bank that remained during the wartime and are now the largest bank in the country.

Also, they plan to be a world-class Pan-African bank. They devote 1% of their after-tax profit to an Ecobank Foundation that has helped a lot of young entrepreneurs and they are the leading micro-finance bank in Africa, with MFI subsidiaries, in addition to commercial banks, in Nigeria, Sierra Leone, Cameroon etc. They have also lent between $500 million to $1 billion to other micro-finance institutions

In answer to other questions, they said No, they don’t have a sector-specific strategy; they look at all risk and return opportunities, and also they are not really into agriculture, though by extension their microfinance arms are.

Asked about the 38% decline in profit attributed to Nigeria’s banking problems: Ecobank’s exposure in Nigeria is 30% compared to the rest of Africa, which is 70%. They are competitive in Nigeria and going forward they see markets like East Africa, and Southern Africa (notably Angola), as being more important over time to an extent that problems in one market (country) should not adversely affect the bank’s bottom line.

What is unique about Ecobank? (asked by a Zambian journalist who noted that they and other banks had invested in Zambia at the height of the global economic crisis?)

They are present in more African countries (29) than any other bank in Africa: from Zambia, one can transfer cash within Ecobank to 28 other countries and a customer can use an Ecobank card in all their 29 African countries, including South Africa during the World Cup and access to thousands of ATMs.

Another question was asked (in French) and from the answer, it seems to be about delays in Rapidtransfer – through which one can send cash to 29 African countries within 24 hours. They answered that they have to comply with anti-money laundering/fraud verification, and they use text messages for the transfers, and if the recipient is not available, the money is refunded to the sender. CEO said there are more Africans in the African Diaspora than outside Africa and they transfer a lot of money which is what Ecobank is facilitating, noting that the volume of ‘Rapidtransfer’ had trebled in 3 months

The genesis of the bank was in a private-sector attempt to facilitate regional trade in the ECOWAS (Economic Community of West African States) region. To this day they try and facilitate regional trade within Africa, among African countries; in East Africa, regional trade is ‘high’ at 20%, West Africa it’s 10%, and Central Africa is at 2% – compared to Europe at 60%. The bank enables business people to trade across countries instantly, and in East Africa when the EAC protocol takes off on July 1 2010, they will be the only bank with such a presence in the five East African community countries.

Fundraising plan: Of the $3 billion targeted in the rights issue, they managed to raise $778 million. They had earlier discussed with shareholders and plan to raise another $500 million this year and more when conditions improve.

Will they cross-list in Kenya?: They mentioned the need to build a critical mass of shareholders as they have just about 800 shareholders in Eastern and Southern Africa. Answering a similar question later, they said cross-listing had to make business sense and there needs to be ample liquidity in terms of many shareholders trading a lot of shares. Their investor relations (IR) people are watching and will advise them on the way forward

Investment in Kenya: Has been about $40 million in two years. The bank they bought, EABS, had 8 branches, they are now at 19 with another three scheduled to be added this year


Why staff numbers are down?: Overall, in the last few years, staff numbers have been on the increase going from 3,000 to over 11,000, but they shed some staff in 2009 through rationalization and efficiency programs.

Ecobank 2010 AGM

Ecobank, a Togolese based banking conglomerate, makes history today by having its 22nd annual shareholder’s general meeting, not in Togo or Accra where it is listed, but in Kenya. Why Kenya? While it has a presence in over 30 African countries, in 2008 they completed a buyout of a homegrown financial institution that was known as the East African Building Society, which is now known as Ecobank Kenya from which they will base their ambitious regional plans.

As with exposure to the Ugandan investment sector, Ecobank brings an awareness of practices of and levels of disclosure for Kenyan companies that have engaged in cross-listing on exchanges in Uganda and Tanzania.

• Looking at the AGM notice for Ecobank which has 180,000 shareholders, it encourages shareholders to sign their proxies and vote even if they don’t plan to attend the AGM, with for/against/abstain boxes to tick.
• Notice figures are quoted in US$ [profit of $62.9 million and a dividend of $29.7 million equivalent to $0.3 per share]. [At the end of 2009, Ecobank has assets of $9 billion, while in Kenya it was the 19th largest bank by the same measure with assets of Kshs 13.95 billion, ($186 million) and made a loss of Kshs 1.15 billion ($15 million) after making heavy provisions in a one time effort to clean up their old loan book]
• Approval of director’s remuneration is something glossed over in Kenya and approved without scrutiny or numbers disclosed, perhaps referred to in the footnotes. Ecobank lists the packages availed to directors that are being voted on [Chairman $50,000, other board members $30,000 and all get two first-class air tickets to Europe]
• There is a follow-up to previous shareholder resolutions: It notes that shareholders had approved capital to be raised by $3 billion, by a rights issue – but that so far only $778 million has been raised and (the meeting) asks shareholders to re-affirm the decision and to allow the board to continue to raise funds by various means.
• Audit firm of PricewaterhouseCoopers (PWC) is re-appointed as joint auditors comprising teams from PWC Ivory Coast and PWC Nigeria.
• Directors being co-opted to the board have their (extensive) CV’s – two in this case, and both are under 50 years.

Matatu IPO

There was a small advert in the Nation this week for a private placement to raise Kshs 600 million ($7.5 million) as investments in the public service vehicle (PSV) transport business.

The promoters, PSV Investments, say they have already invested in PSV’s, commonly known as matatu’s, through transport companies, savings & credit societies (SACCO’s), and individual owners. They are selling 6 million shares at 100 shillings each, with a minimum investment of 5,000 (~$62) for individuals and 100,000 (~$1,250) for institutions, and the Vice Chairman is Dickson Mbugua who’s often on TV defending the Matatu industry as an official and a spokesman. It opened on May 17 and closes on July 3.

The PSV business is one which has had difficulty getting organized investments because if the poor reputation of the business. This is because of the reckless driving habits of drivers, gangs involved in management, insurance claims & losses.

(this matatu ran me off the road this morning, and I had to drive on the pavement to avoid an accident)

Nevertheless, matatu owners are able to obtain loans from some banks but who limit their exposure by financing less than they would for an individual e.g. where a bank may finance 80% or higher of a vehicle cost, for a matatu that’s only about 50% with the owner paying the difference. In some cases they also shorten the repayment cycle to weekly installments, instead of monthly, to prevent diversion mismanagement of cash as a matatu generates (and spends) most of is cash on a daily basis.

SACCO’s have a reputation for running the best matatu businesses, and listed transport company, Express Kenya, has also invested in the PSV business via KBS and Citi Hoppa, as detailed at last year’s invested in PSV business, as discussed at their 2009 AGM.

Private placements are riskier in terms of entry and exit, and I’m dealing with two unique placement cases now: one with an investor who wants to exit from a minority shareholding, but at a greater price than the majority shareholder will pay and another placement in which the promoters have been incommunicado for six months after urging investors to buy into a company. It’s not clear if the CMA is aware of this or if there is a transaction advisor or prospectus for the company.

Total 2010 AGM

The annual general meeting of Total Kenya was held on June 2 at KICC Nairobi. (Excerpts from shareholder Q&A)

Hot Button issue was the Low Divided
– Board said DPS of 1/= ($0.12) per share down from traditional 2.50/= ($0.03) per share is the best they can do
– Why are you not paying dividend as high as rival Kenol? If rival Kenol is paying more, it is because they have not invested like Total (Note: today was also the day Kenol effected their second ever share split, giving their shareholders 10 new shares, for every one they owned)
– Buyout of Chevron by creation of new shares has diluted ordinary shareholder stake and dividend? true but this information was disclosed before the deal was approved and completed

Preference shares: – Since parent owns 83% why not re-classify minority shareholders as preference shareholders? the preference shares only participate in dividends and are non-voting
– When will class A shareholders who have been locked in be released to trade their shares? CMA finally granted approval and they have been free to trade from May 17 2010

Will Total bid for Shell assets? No they will not bid – various reasons cited include, its an international deal that covers 20 countries, they (and Shell) are already at about 30% market share in Kenya and can’t go higher (also cost)

High Working Capital: one shareholder noted the company traditionally carried high debtor levels, high stocks and high borrowings and called on the Board to be vigilant in collections, reduce stocks, and perhaps do a rights issue to rectify this. Chairman said they are vigilant with credit sales, and that inventory was currently higher as it was for the two individual companies (Chevron & Total), and that they will review the rights issue to see if it is relevant

Chevron stations: Which were bought in 2009 – and those not being sold onwards (as directed by Kenyan Government) will be-rebranded by year end, and there will be no loss of staff at either company

Goodies: umbrella, tote bag, t-shirt, lunch box (1/4 chicken, sausage, spring roll, beef sandwich, soda, and water

Past AGM’s in 2008 and 2009