KCB: From a ‘bad’ bank to one of the biggest in East Africa

Last Saturday, the Kenya Commercial Bank did a first — conducting a free health clinic in Baringo County — not for wananchi but for livestock. The initiative, the lender said, is aimed at boosting commercial viability of livestock in the semi-arid county.

The free health clinic was carried out through the bank’s foundation and in partnership with the Kenya Veterinary Association, the University of Nairobi’s Faculty of Veterinary Medicine, the university’s Veterinary Students’ Association  and Baringo County.

While the initiative seems out of step with the core business of a commercial bank, KCB chief executive Joshua Oigara says this is a new thinking that is driving the lender’s transformation as it seeks to become one of the biggest financial institutions in the region.

“The biggest thing we (KCB) want to do is to transform the country. We must look beyond the profits we are making to orchestrate change in those we do business with,” Mr Oigara noted.

The free health clinic is part of the 'Mifugo ni Mali' project in which the bank has committed Sh1 billion over the next five years to promote farming in arid and semi-arid areas.

The bank says the initiative is driven by the realisation that increased productivity in rural areas will significantly contribute in propelling the country to the middle-income level.

The lender chose to focus on livestock farming because it is the most labour intensive activity along the value chain. Analysts give livestock farming a multiplier effect of 11.

VIRTUAL BANK

Improving livestock farming is one of the many ways the bank intends to use to drive its dominance in the market.

Two weeks ago, KCB achieved another first by launching the KCB/M-Pesa account — not a nobility on its own with M-Shwari having come before. However, the possibility of borrowing a Sh1 million via the phone without visiting any bank to sign any document makes the product stand out.

Already KCB says it has had its first customers for Sh500,000 loan through the mobile platform. The new initiative breaks the almost cardinal rule in banking of “no lending without security”.

“People who repay my money don’t do it because they have securities. No. It’s because they have the capability to make money. With KCB/M-Pesa then, I will aim at lending on repayment ability,” Mr Oigara says.

The bank has set its sights on about 10 million customers with  a target of one million in the first month. By close of the first week, the bank says, it had realised a third of the one-month target of  customers with projection that the goal could be attained a week earlier.

The product is an upgrade to M-Benki launched in 2013 which allows customers to open an account using M-Pesa details without the need to visit a physical branch. By December last year, M-Benki accounts had hit one million with users borrowing over Sh589 million.

“It’s about dignity in financial access and democratisation of credit,” Mr Oigara says of the motivation behind the innovation.

“The fact that a person can now borrow Sh50 to pay bus fare to work or Sh1,000 to pay for electricity without reaching out to friends is in itself liberating.”

The innovation also reflects a change of heart by the  banking industry, which had initially opposed mobile money. The change of tack is attributed to the realisation that mobile technology is a key driver to financial inclusion in Africa. It has been touted as the key to solving the high cost of mobilising savings, which currently requires financial institutions to set infrastructure and deploy human capital. This end up making the cost of credit expensive and out of reach for the majority of the population.

SOCIAL WELFARE

With a wide range of credit — between Sh50 and Sh1 million — KCB says another unique attribute of the product is its flexibility of the repayment period. The borrower can pay between a month and three months, which is not the case with other products in the market.

Last year, in another partnership with Safaricom, KCB launched Biashara Smart to help small and medium-sized firms to access finance with value addition such as website domains, talk time and text message services.

“The biggest stumbling block to entrepreneurship is in infrastructure, which is why we are in the road annuity programme,” Mr Oigara told Smart Company on why the bank is one of the two that came out to fund the government’s road construction programme.

Last year, the government initiated the road annuity programme, which aims to double tarmacked roads from 14,000km to 24,000km  in the next three to five years.

Under the model, contractors will access loans guaranteed by the Treasury from banks, enabling them to design, construct and maintain the roads. The Treasury will repay the loans in equal instalments (annuity) over eight years, starting from the time the road project is completed.

The banks are expected to lend up to Sh178 billion to fund the entire 10,000km of roads expected to be completed in 2017. KCB pledged  to allocate Sh20 billion. Co-op Bank said it would give Sh5 billion.

In January, the bank signed a deal with the government that would see the lender earn millions of shillings disbursing cash to the poor under a social welfare programme. The plan was to begin this month.

Under the deal, KCB handles cash transfers amounting to Sh29 billion in the first year channelling them to about 400,000 orphans, the elderly, the disabled, and poor urbanites.

Fresh from delivering Sh1 million through the phone, KCB is working on building  three-bedroom houses, each going for Sh1 million, under the government’s programme of affordable housing scheme. 

The bank says negotiations are already underway between the bank, National Housing Corporation, IFC and other organisations to deliver “the single largest source of wealth for families.”

But there is also the small matter of local banks playing second fiddle to foreign banks in financing big projects, especially government initiatives. Standard Chartered, Standard Bank and Barclays Bank have been at the forefront in syndicating loans to government and the private sector.

STREAMLINED OPERATIONS

“Size of capital has been the biggest problem,” KCB CEO says “which is why we will be tapping the international market for a $250 million loan.”

The raft of innovations by the bank marks its complete turnaround.  It was once described by it former chief executive, Mr Gareth George, as bad bank on account of a huge bad loan portfolio, which threatened  to bring down the lender whose majority shares were held by the government.

The bank has had to struggle with the fact that it was essentially a government-owned  institution until very recently, especially in dealing with human resource.

“The bank has since changed,” says Mr Oigara.

The workforce has changed with over 65 per cent now aged below 30 years and less than 10 per cent having been with the bank for more than 10 years. KCB hired International consultants McKinsey & Company in 2011 to streamline its operations.

“That (human resource) problem  doesn’t exist anymore,” Mr Oigara says.

NUMBERS

Bank attains important milestones

Sh16.8 billion after tax profit in the year ending December 2014

Sh284 billion loans book

244 branches regionally  

962 ATMs and

10,102 agents

4.14 million customers

Sh7.8 trillion money moved in 2014, 1.5 per cent of Kenya’s GDP

Sh178bn

What banks would loan contractors in plan to build 10,000kms of road. KCB has committed Sh20 billion

Sh1bn 

Money KCB has committed over the next five years to boost farming in arid and semi-arid areas

Sh1m

Maximum loan customers could get from KCB via mobile phone through the lender’s KCB/M-Pesa account. There is no need to visit a branch

500,000 

Loans in shillings that some KCB customers have already applied via their handsets