Q1: Equity Bank

The evolution of equity bank, from a small, insolvent mortgage lending company, to a fast-growing, internationally acclaimed financial services bank is a remarkable case study in the field of management. The history of the bank begins in central Kenyan in a small family-owned firm to a now leading, listed financial institution with branches in Uganda, Rwanda, Tanzania and South Sudan. The tremendous rise of the bank makes it a unique case study for those aspiring to follow the banks extraordinary trajectory.

There are several factors that have led to this turnaround. Some of the Equity bank stakeholders attribute its success to the shift from mortgage finance to microfinance as one of the best decision the management ever did, but there are other factors that continued to drive the bank’s growth. From its early days, Equity adopted a strategy of targeting the masses and the “unbankable”.  This strategy led to the banks phenomenal growth in a market that had big and established players like the Barclays bank, Kenya Commercial Bank and Standard Chartered Bank (Alan and Peachy 2008).  In the early days that equity bank was conceived, then as a building society, other financial institutions placed demands that technically excluded the poor from banking services. As it is indicated in the Equity Bank case study, “while multi-national institutions required proof of property ownership or other form of conventional collateral, nothing more than a National ID (a document every citizen had) was needed to sign up for an account at Equity Bank”(Stanford Graduate School of Business 2007, p.6). In addition, multinational institution required high minimum balance and charged exorbitant “account maintenance” fees which made their services too expensive for the poor.

When equity bank first opened its doors, it branded itself as a bank willing to accommodate the poor. All the bank services, including lending and savings were made accessible to the poor. Targeting the poor, or rather the “unbanked” helped the bank acquire customers easily and connect with the poor by using messages that convinced the masses that the bank was opened for them. By using this strategy, like Mohammed Yunus in Banglandesh, the bank proved that the poor were bankable. Equity bank proved this with tremendous success.

The organisation culture of the bank resonated well with its target market. The culture of customer service was imbibed on all employees of the bank. Each of the employee understood that majority of their customers were the poor and that the bank was build on a platform of uplifting alleviating poverty. The bank managed to discard the family tag when it started hiring on meritocracy (Ratichek 2011). Only the best employees who had shown a committed passion of helping the poor were retained in the bank.

Leadership played a role in Equity Bank’s growth (Venkata and Mishra 2013). From its founders, to the now esteemed CEO, James Mwangi, the bank has demonstrated an unusual leadership style. In addition, the bank had a competent management across its rank. The managers are responsible for making the drastic decisions that has helped the bank sustain its competitive strategy.

Equity Bank has also leveraged on technological advantage to help it offer services efficiently and satisfactorily. While banking on the masses and relying on volume to maximise the small profit margin, congestion in banking hall is bound to arise (Women’s World Banking 2008). The bank has managed to decongest its banking hall and improve on its service delivery by employing technology such as Auto Teller Machines and online and phone banking. In an attempt to bring banking services closer to the people the bank also launched agency banking using mobile phones and point-of-sale (POS) technology (Venkata and Mishra, 2013).

 The role of aggressive branding and marketing in equity growth cannot be ignored. When the bank was launched, it branded itself as an indigenous bank that offered services targeting all people. Through branding, the bank managed to sell its image to the masses and masses quickly identified with the bank. The common message that was passed to the local people is that Equity bank had come to offer services that would uplift them out of poverty.

Q2: UK Legislation

The history of the Equity Bank is that it begun as a building society. In UK building societies are regulated by the Building Societies Act 1986 which has been revised several times, mainly by the Building Societies Act 1997 and the financial Services and Markets Act 2000. But now that the Equity bank is a bank, it could be subjected to the recently introduced Financial Services (Banking Reform) Act 2013. Prior to the coming of the new Act, the UK banking sector was regulated by the Banking Act 2009. After the recent financial crisis, the government saw the needs for safer and stronger banks. The new Act is a response to the Independent Commission on Banking (ICB) report which among other things recommended ring-fencing for the banking sector (Earnst & Young 2011). The ring fencing proposal, which has now been entrenched in the Financial Services (Banking Reform) Act 2013 will affect the operation of any bank operating in UK. Ring fencing requirement would force the Equity Bank to separate its retail and small business customer lines with its riskier investment arm (HM Treasury2014). The regulation means that the bank would be forced to close some of its high street branches and also charge for some of the free services that the bank offers.

In addition, every financial institution operating in UK, whether it is a Bank or a charity institution has to conform to the stringent anti-money laundering and combating the financing of terrorism (AML/CFT) framework.  The Proceeds of Crime Act 2002 (later amended by the Serious Organised Crime and Police Act 2005) makes any activity of money laundering a criminal offence in UK. In addition, sections 15-18, Part III of the Terrorism Act makes any act of financing terrorism criminal. The Anti-terrorism, Crime and Security Act 2001 on the other hand give the government the power to freeze any asset linked to terrorism activity. These rules also apply to charities since they have been recognised as the avenues through which terrorist raise and transfer funds (Does de 2010).

 Q3: Equity Bank’s Strategy

Yes, Equity bank strategy is well suited to the competitive environment it faces. In a developing economy where a significant number of the population still lives below poverty line, a strategy that targets the masses is bound to succeed (Hawkins and Mihaljek 2003). Although most of the East African countries are experiencing economic growth, it is unlikely that the population will pull out of poverty any time soon. Its expansion strategy in neighbouring countries with similar economic status such as Uganda, Tanzania, Rwanda and South Sudan will continue to maximise the banks profit margin as well as expand customer base.

The advantage of the bank strategy is that even as it targets the poor, it does not lose sight on the rich. The bank also operates “prestige” services designed for the high end customers. This is where the rich can get premium services offered by the best of the bank employees. This is a good retention strategy for customers who are pulling out of poverty.

One of the disadvantages of the equity bank strategy is that it is not sustainable. A sustainable competitive advantage, according to Porter (2008) is that which cannot be easily replicated by competitors. Other banks can as well offer services targeting the poor. The only advantage that Equity has on this strategy is that most of the likely competitors are foreign owned. Working on the strategy that the bank is indigenous grown can win over the other banks.

Compared to NGOs, Equity Bank is a for-profit microfinance institution. Although the bank has a social mission for uplifting the poor, it also aims to benefit from them. Operating for profit may sometimes erode the social mission that the bank has relied on for its success. The NGOs on the other hand are nonprofits organisations. While for nonprofits organisation would pose a challenge to the bank’s growth, the reality is that the NGOs are too few and their lending power limited (Lewis and Kanji 2009). In addition, most of the nonprofits NGOs in Kenya are not directed at lending, but their focus is on more immediate needs like offering relief food, rescuing disaster victims and helping refugees.  The NGOs pose little competition to for profit microfinance.


 For profit banks, like microfinance are hybrid institutions- they are founded on the principles of a for-profit company such as efficiency, focus and access to capital yet they promise to address the social ills traditionally undertaken by NGOs and other not-for profit organisations (Downey and Conroy 2012).The reason why for profit banks co-exist in the same environment with NGOs can be explained from two perspectives.  One of this is structural and the other is that social enterprise can bring high returns.

Social enterprise is all about helping poor people who have been left out by the market driven economy. These poor people are often scattered in a country, and thus they are hard to reach. In order to reach them, a social enterprise, commonly microfinance has to employ agents who are going to reach them and educate them on the importance of a loan. The whole process of reaching out to these people, educating them and tracking the loans makes the nature of social enterprise expensive (Brugman and Prhalad 2007). Microfinance can absorb this cost by charging high interest on the loan and utilising the benefits of economy of scale. The poor people are able to make productive investment using the small loans and can pay the high interest without difficulties.

The second reason is the fact that there is high profit in investing in the poor. After microfinance became a way of alleviating poverty in 1970s and 1980s especially in Banglandesh, investors realised that poor people could actually pay high interest on small loans (Canales 2013). Through microfinance, investors could not have found a better way to help the poor and at the same time make profit.  The poor are able to invest their small loans in productive areas that can be able to sustain high interest charges. These are some of the issues that make for profit banks better placed to drive economic growth and promote social welfare more compared to NGOs. 

Nonprofits or charities organisations can drive economic growth and promote social welfare but they face a number of challenges. One of the biggest challenges to charities is funding (Froelich, 1999). While for-profit banks can readily get funds from venture capitalist, charities have to rely on well wishers to finance their projects. The other challenge is about the administration and management. Due to their limited funding, charities often rely on volunteers to run their organisations. Sometimes volunteers may not have the adequate knowledge or the capacities to undertake big projects.

These challenges, nonetheless, do not undermine the important role charity plays in country’s economic system. Charities exist to fill the gap in delivery of services. As the market failure theorists contend, in all sectors of a nation- economic, social and political- there are unmet needs (Samuelson 1961).  Charitable organisation come to fill the gap either in delivery of essential services such as health care, education and care for the elderly or partnering with the government to empower citizens. Charities are involved in poverty reductions, educating people on how to combat preventable diseases, fighting social ills such as drug abuse, and training people on how they can become independent and productive. Charities are also taking up advocacy role like campaigning for pro poor policies and defending democracy and human rights.  Charities, just like companies and public sector, contribute to economic growth.

Charity brands are important tools for fundraising. Members of the public trust nonprofit brands more than they do commercial brands. For this reason, members of the public are more willing to donate their property and money for charity work. But as Kylander and Stone (2012) have added, charities are beginning to use their brands for strategic roles such as driving broad, long-term social goals, strengthening the identity of the charity, cohesion and capacity building.





Reference List

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