By opening up the telecommunications and internet sectors to private investors, African governments have given them the upper hand in the lucrative ... data market. If the continent is to regain control of its digital economy, countries need to rethink tax and regulatory policies, analysts argue.
You can take the man out of the microfinance institution, but you can’t take the microfinancier out of the man. Celestin Mukeba Muntuabu ran the microfinance bank ProCredit Bank in the Democratic Republic of Congo (DRC) before taking up the position of CEO of Equity Bank DRC. The subsidiary of Kenya’s Equity Bank bought a majority stake in ProCredit in 2015 for $60m.
While some yearn for the glittering spires of Wall Street, Mukeba likes things a bit closer to earth. He lights up when talking about how ProCredit helped firms that floated just under the criteria of the formal economy. “They don’t have solid guarantees, they are risky to bank,” he says. But they pay off handsomely when they succeed, both financially and also in terms of impact.
“We had experts who go to evaluate these small businesses, look at their profitability and then accompany them into the formal economy,” Mukeba explains about his time at ProCredit. “There are clients to whom we say: ‘Buy a notepad. Every time you make a purchase for the business, write it down. Every time you make a sale, write it down.”
He has seen many clients turn their operations into large companies after such scrappy beginnings. “Seven years after lending to a company that we would call ‘micro’, with a turnover of $10,000 a year, it now has revenue of $4m.” Another successful convert to the formal economy, after years of financing rounds and advice, has grown so large that it has recruited an external auditor.
Small wonder then that ProCredit became a target for the East African juggernaut Equity Bank. Built into a ‘bottom of the pyramid’ player by current chair James Mwangi, Equity Bank has a similar credo about helping small businesses, supporting them as they integrate into the formal economy and building up the kind of transparency that allows them to work with banks more readily. “They see the value, and they become clients for life,” says Mukeba.
Digital head start
Working with small firms can be extremely time-consuming and expensive, however, requiring a large number commitment for a relatively small payoff. That has changed with the arrival of Equity Bank, and the artificial intelligence deployed in its banking platform. “Given the digital head start of [Equity Bank], we are able to do credit scoring and risk appraisal for a far greater number of clients,” says Mukeba. More than 90% of credit approvals now take place through its digital platforms.
Equity Bank’s ambition, says Mukeba, is to be among the biggest players in the markets where it operates. Managers see the DRC as a leading economy in the region, given its size and population. So Equity Bank has prioritised acquisitions in the DRC over other mooted expansions. In June, Equity Bank cancelled its talks to purchase Atlas Mara’s banking operations in Mozambique, Rwanda, Tanzania and Zambia. This was due, in part, to ongoing concerns about the economic impact the COVID-19 crisis might have.
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Also in June, the Nairobi-headquartered lender suspended its dividend payment to shareholders. However, it went into this year with a very good performance. Equity Group recorded a 14% rise in profit after tax to KSh22.6bn ($212m) in 2019, thanks, in part, to the 23% growth in its loan book from across the countries in which it operates.
That suggests that Equity Bank will not dial back on its investments in the DRC. “Given the large land mass of the country, there was a real need to boost Equity Bank’s coverage. That is where the Banque Commercial du Congo [BCDC] acquisition has real potential, given its branch network and also a strong corporate banking network”.
In December 2019, Equity Bank came to an agreement with the Belgian tycoon George Forrest to purchase the remaining 66% of BCDC that it does not already own for $105m. The client base of blue-chip clients in BCDC’s portfolio may open new opportunities for Equity Bank, such as weaving together the operations of small businesses with those of larger ones.
The bank will need a deeper pool of savings if it wants to do more corporate lending. Only around 5-6% of the 85 million people in the DRC have a bank account today. To expand access to financial services and boost its savings cushion, Equity Bank has brought its ‘agency banking’ model, which has been so successful in Kenya, to the DRC: shopkeepers and traders can become resellers for the bank’s savings, credit and micro-insurance products.
The DRC needs to start creating value at home rather than just exporting natural resources, argues Mukeba, to be able to get a stable currency and allow businesses to plan more effectively. “Our model has to change – it’s imperative,” he says, “and has become even more so given the COVID-19 pandemic, which has shown the limits of our economies [being] so dependent on food imports.”
The Congolese franc is depreciating quickly as the country continues to import, and exports are greatly reduced. Helping farmers to grow is key to turning things around, he says, for the long term, and the potential for agriculture in the DRC – with some 80m hectares to farm – is clear. “We used to be a net exporter of corn and other crops,” he points out.
The drive to pull more Congolese into the banking sector is about to receive a boost from the government of President Félix Tshisekedi.
He is laying the groundwork for a new national biometric identity card. “If someone does not have a formal identity registered by the state, they are already de facto excluded from the banking system,” says Mukeba. “We apply the highest standard in anti-money laundering and ‘know your customer’ regulations, so this will greatly help our ambition of banking the Congolese.”
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