James Mwangi, CEO, Equity Bank, Kenya

James Mwangi, CEO of Equity Bank, Kenya, East Africa's largest bank by customer numbers, was last month named the winner of the prestigious and highly coveted Ernst and Young World Entreprenuer of the Year Award.  He spoke to Financial Nigeria's writer, Gitahi Njeri, in Nairobi about the award, prospects of Equity Bank expanding into Nigeria, and his rise through the ranks to become the bank's Chief Executive Office.

Equity Bank has become a major player in Kenya's financial services sector. In effect, Equity Bank is a major bank in East Africa. Sometimes one may think that the opportunities for further growth have shrunk. Which areas are the bank's frontiers for further growth?

The whole banking industry in Kenya has slightly over 14 million customers. Equity has 8 million of these customers. But we can not say that Kenya is fully banked given that we have a population of 40 million people.  I see Equity being able to unlock another 6 million accounts.

Besides that, we want to mine the five countries we are in. We want to ensure that we adopt mobile and agency banking in Rwanda, Uganda, Tanzania and South Sudan and grow numbers there in the same way we have grown in Kenya.  When we have substantially penetrated East Africa, we would expand our outlook to other frontier markets in other regions.

Is Nigeria anywhere on your radar?

Yes, but not in the short term. The challenge in Nigeria is the banking culture is fairly strong. To operate in Nigeria, one requires a huge capital base in line with regulatory requirement. It's a huge market with a population of about 165 million people. But beyond meeting basic regulator y requirements, you need to open up a very big bank to be able to compete and in order to make business sense.

What we are doing right now is to ensure that we help the people in the countries we operate create wealth. If the 8 million customers increase their level of banking, that would not just make us the biggest bank in Africa by customer numbers but also one of the biggest companies in Africa. That would give us the kind of balance sheet to go to Nigeria.

Given a choice between Nigeria and Ethiopia, if the doors open up, we would prefer Ethiopia. If there is peace in Somalia, we would also want to help harvest the peace dividend. The beauty of these two countries is that they are next door neighbours. Each of them is an hour's flight away from Nairobi.  Another place we would want to expand to before Nigeria is Democratic Republic of Congo which is also nearer and has a reasonably big unbanked population.

You have recently won the Ernst & Young World Entreprenuer of the Year Award. What informed the judges' decision in naming you the winner?

The panel has very specific aspects of business and entrepreneurship that they look at before they determine the winner.  In my case, Equity Bank, scored highly in all the aspects that the panel was evaluating. In terms of growth, the award panel noted that we have grown tenfold in the last five years. In the last ten years, six of them under the global financial crisis, Equity Bank had a compounded growth of 78 percent. In innovation, the bank was recognized as the bank that invented mobile banking, and pioneered agency banking.

Further on innovation, the bank's model of focusing on the unbanked population came out very strongly. They were also impressed by our ability to finance agriculture in a country that is food insecure. In terms of influence, we impressed the panel by the fact that we have 50 percent of all banks.

In social responsibility, the panel scored us highly for a number of reasons. The first is our Wings to Fly project where we educate 10,000 students in high school and the fact that we have pulled more than 500,000 peasant farmers from poverty into entrepreneurship. Then the fact that we provide financial literacy to one million Kenyans and our vibrant women entrepreneurship support programme stood out for us. 

What does this award mean for you at a personal level and for Equity Bank?

This award elevates my status globally. It puts me in the same level with other previous winners. One hopes that the same aura and treatment proffered to the earlier winners is what Equity bank and I will receive.  But Equity is more than that. I say this because as you may be aware, Equity Bank is already a case study in 18 business schools across the world.

Besides the significance it has for me, this award is very significant for the black race. On the day they gave me the award in Monte Carlo, I became the first black person to win this global award. Secondly, I became the first person whether black or white to win this award in Sub Saharan Africa.

To me, the award breaks the psychological barrier that traditionally stops us from thinking that we are equally as good in business as any other person in the world. I am hopefull that the international community will break that perception which traditionally associates Africa with floods, disease, and hunger. I also hope that we will see massive flow of foreign domestic investments into Sub Sahara Africa.

You picked all your savings and invested it in Equity, then known as Equity Building Society at a time when it was technically insolvent. That was a short while before your former employer, Trade Bank, collapsed. Some people would consider such a decision crazy because ordinarily, people invest in companies that are growing; not those that are going down. What is your comment on this?

Those who are familiar with the way Trade Bank was operating would understand the kind of frustrations I was going through. Here was a bank that was exclusively banking for the elite! This was a bank where I was the financial controller but my brothers or mother could not operate an account. It was that contradiction that led me to ask myself why I should let Equity, then a building society, to close down. And that was where my mother in the village was banking.

Even when I try to look back today, I cannot justify my decision because I left a salary of US$5,000.00 to earn US$320.00. So there is a big contradiction there. In this context, I also did not respect the fact that I just had my first born. My wife, Jane, and I had just gotten married and had been blessed with our first born. One can safely say I ignored my responsibility. But that community concern is more in my nature. I was so attached to my community. Even today, my focus has not changed much. The social arm of Equity Bank and James tend to override the business side. 

In those initial days at Equity, were there times when you felt maybe you had made the wrong investment decision. If yes, what kept you going?

Those thoughts crossed my mind when I first entered Equity and discovered they had not held a board meeting for more than two years. They did not even have a trial balance. In short they did not have accounts for three years. And then I found that the bank had a capital of US$35,000.00 against a loss of US$400,000.00. These discoveries really shocked me because I had left a bank with a capital of US$25 million to go to a bank with only US$26,000 in customer deposits, technically insolvent, a bank with only 27 employees who had not received a salary increment for eight years. At that moment, I felt as though I had made the wrong decision.

But once the execution started, I never looked back. By the end of the year the deposits had hit Ksh135 million, loans moved from Ksh9 million to Ksh35 million. We even made a small profit of Ksh5 million as opposed to accumulated loss of Ksh33 million, and then I told myself: "the turnaround has started."

With benefit of hindsight, I know this is the best decision that I have made because it gave me the opportunity to demonstrate what I could do with my knowledge, skills, talents and gifting, from a clean slate. 

From a management perspective, there would not have been a bigger challenge than this because you are not just technically incompetent; you are also the worst performer in the industry.

We have moved from 27,000 customers in three branches to 200 branches with more than 8 million customers in Kenya. The balance sheet has moved from US$26,000.00 to US$2.6 billion. A loss of US$400,000.00 million has been replaced by profits of US$165 million annually.

However, I am also a risk taker. It should be remembered that when other banks were closing branches in rural areas, I was busy opening the branches. When people in my industry were debating whether it is good business to run branches in post-election violence, I was busy opening branches in those areas. 

Doing business at the bottom of the pyramid was the major source of Equity's problems in the early days. Yet when you got on the driving seat, you still insisted on following the same model. How did the directors take your approach to business in those early days?

I had one advantage working for me. I had demonstrated my capability. I had been a financial controller in a bank at 26, and coming to lead a bank where the average age was 50. The directors gave me the benefit of doubt and said, "Let's see what you can do!" Luckily, quick results were realized and that worked to allay the directors' fears.  But I also changed the bank's mode of business.

Before my entry, their focus was on one rural town where they were pursuing business from tea farmers. But they could not reach the economies of scales. When I came in, we opened a Fourways branch in Nairobi and pushed its business hard. Then we took Nairobi City Council employees, the traders in Nairobi's Gikomba open-air market. By so doing we enlarged the number of customers in the bank. That was the difference in my approach. The previous management had the right concept but they did not have the numbers.  If you look at the Equity recovery path, you will find we did not increase the charges; matter of fact, we cut most of the charges, but we grew heavily in volumes. This made the bank a low margin and high volumes business. The previous management had low margins and even lower volumes and that was where the mistake was.

One of the defining characters of your bank is the ability to open up businesses in virgin areas and also new ways of doing business. How would you describe your role in all these innovations?

I am fairly innovative. I like thinking outside the box and I'm bold enough to try things that have not been tried.  I am also fairly consultative in the sense that I sound off what I intend to do with people who can give their frank opinion. I am also easily accessible and sociable so that in many cases, people volunteer innovation ideas. I also take feedback very quickly. That means although I may be quick to take risk and implement an idea, I am also very fast at evaluating results. And if something is not working, I am very quick also to own up and admit it is not working. That is what we did with the Equity Investment Bank. When we realized it was not working we closed it down.

Is that the same reason why you ended the Equity Bank, Safaricom partnership in the M-Kesho (mobile banking platform where Safaricom subscribers could open accounts, save money and earn interest or borrow from Equity Bank)?

When you are in a partnership, sometimes you allow the partners to speak. But let me say this. We became more creative and we did not want to box Kenyans into where they had no choices. We felt the best approach is to interconnect with all telecoms so that the customers can use the mobile banking platform without necessarily been locked to one particular telecom. At the same time, we felt we needed to move to the next level where you don't just link a bank account to a phone but you mapped the bank to the cell phone. This is what created Eazzy 24/7 which is the best mobile banking platform in the world. That allowed us to allow people to access their bank accounts through all mobile money transfer services including M-Pesa, Airtel Money, Orange Money and Yu Cash.    

This interview first appeared in the July 2012 edition of Financial Nigeria magazine - a monthly Development & Finance journal. To subscribe to it, click here