Equity Bank Tanzania: An All-Inclusive Commercial Bank

Interview with Joseph Iha, Managing Director of Equity Bank

Equity Bank bank’s business model is based on offering low income and marginalized population convenient and affordable access to a safe and secure place for their savings. It has attracted a lot of international recognition, various awards and it has been recognised by the Gates Foundation. What differentiates Equity Bank’s approach in extending financial services to the low income segment and the unbanked population? Outline for us your fundamental business strategy.

Equity Bank is an all-inclusive commercial bank. It started from a micro finance background with banking the unbanked and the bottom of the pyramid customers, but over time it has evolved. It has evolved to the extent that we are targeting everybody. We are all inclusive. We are not a bottom of the pyramid bank or a SME bank or a corporate bank. We offer a full service and we try to provide solutions across the full spectrum of customers. I think Equity Bank’s business model is driven by its vision, which is to champion the socio-economic prosperity of the people of Africa. In doing so, we don’t discriminate. We believe that Africans have the potential to better their self, to become bigger and to grow. Equity Bank’s role in this process is to unlock this potential in every person living on the African continent. It’s a business model that is mainly driven by three fundamentals. We focus on affordability of our solutions, accessibility and flexibility. These are the three things that we focus on and offer to all our customers in all the markets that we go to be it in Kenya, Uganda Rwanda, Tanzania and other African countries that we aim to go into.

So you are no longer aggressively opening zero balance accounts from the beginning and then coupling that with both diversifying [road] funding and revenue sources?

In terms of prospects and room for growth, it is enormous. Look at a country like Tanzania with a population of over 55 million people. The banked population is almost insignificant.

Our zero balance accounts have a backstory. You need to understand where Equity Bank is coming from. We are not opening zero balance accounts. We did research to understand the psychology of the poorer people and why they don’t put their money in a bank. We realized that there are a lot of bottlenecks and roadblocks that have been put throughout the whole process of opening an account. One of the things that we did was to simplify the entire process. We decided that if the only thing that was keeping a customer from opening an account was a required minimum balance, then we would remove that minimum balance. So you can open an account with whatever amount you have. We are not selling zero balance accounts. We are providing you with the opportunity to open an account with whatever money you have and if you don’t have money today but you have the prospect of getting money in the near future, then we will open an account for you and when that money comes through then you have a place to put it, as opposed to us waiting for you to get the money and when you get it you then start looking for where to put it. We are giving you an opportunity to open a bank account. If your money is only being paid at the end of the month, then you can provide that bank account for it to be remitted into. In that way we have streamlined and made it easier for the lower income people to open a bank account.

The bank’s vision is to be the socio-economic champion for the people of Africa. Currently the bank has over 8 million customers, making it the largest bank in terms of customer base in Africa, with subsidiaries in Kenya, Rwanda, South Sudan, Tanzania and Uganda amongst others. Beyond these impressive existing numbers, what is your growth trajectory now going forward?

The amount of account holders we have is in that region, but we have barely scratched the surface if you look at the population of the continent or even just in the countries where Equity Bank has a presence. In terms of prospects and room for growth, it is enormous. Look at a country like Tanzania with a population of over 55 million people. The banked population is almost insignificant. Whoever provides a solution for the majority of the unbanked African people will take over the market. There is a huge opportunity that has not been tapped and this is what we think about every day and sometimes when we look at the numbers we see there are so many banks but then there are also so many people that are unbanked. What can we do about the unbanked population? What is keeping them away despite all these solutions and products we are offering? There must be something we haven’t thought of and whoever figures it out will trigger all these people to come into the banking system and will therefore take over the banking market. There is huge potential waiting here.

CRBD said that a lot of these banks are here on a long term punt in Tanzania because it’s only 15 million dollars of capital that has to be provided in this country to get the licence, so they are just here essentially biding their time treading water and waiting for those long-term structural shifts to fall into place and then they will have a foothold operation to take advantage of this so basically we are taking a long-term view on Tanzania.

Yes, it’s important to take a long-term view. I always say that every market has its own opportunities and its own challenges. Tanzania is no exception. It has its own challenges and it has its own opportunities. The biggest opportunity that I see is the unbanked segment of the population. It provides a huge opportunity. But again there are also challenges which are known and common to most of the players but you can see the drive and intent to resolve these challenges from government, the regulators and the stakeholders. There are joint initiatives that are in progress. So yes, it may not be optimal or perfect but it is good to have a long-term view because some of the things that have been initiated and are in progress will result in making it even better for the operating environment, particularly for the financial sector. There are a number of initiatives that have been put into motion which once concluded will probably result in the up taking of banking services being much faster than what it is now. But even in the current context, there are opportunities that still have not been tapped and the financial institution that does will take over the market.

Key to Equity Bank’s success has been reaching a mass market depositing in Kenya and other territories and one of the key tools that was used was pioneering an expertise in agency banking. What have been some of the challenges while trying to implement the agency model in some of your other Greenfield subsidiaries such as Tanzania?

The agency banking model is easily scalable and applicable in all the African markets. It started in Kenya but it has also been very successfully implemented in Rwanda and here in Tanzania. We have in excess of 850 agents across all of them. What makes it so attractive and easily scalable is the convenience with which it offers financial services. This is because we use a familiar face in each community: a shopkeeper or another business man that has been there for years and has been giving you products and solutions and now they are offering you financial services as an agent of a bank as well. One of the criteria we look at when talking about agents is that they must be existing business people operating for a minimum of two years, with a permanent business location and an on-going business. So because of the trust level that has been built over the years it makes it easier for that agent to start talking to customers about opening a bank account and starting to save and then if you need to access your money they are able to pay you. What we do is to integrate these products, you open your account with the agent, you are registered on mobile banking and you receive a notification. So for whatever transactions you have with the agent you will receive notifications from the bank. The transactions come from the bank and not from the agent. It builds confidence. Even those that start on a trial basis end up believing in the product and they will talk about this to people and this is why it is so attractive and easily accepted, even in new markets, such as Tanzania where Equity Bank is a new brand. We are not only introducing the brand but also the agents. In the beginning we were not sure what the reception would be like but it has surprised us. We are very impressed. Without having to spend money on advertising the uptake has been impressive.

How challenging was it being a new foreign bank in a market with many well established local players, not only including the commercial lenders, but also the more specialized microfinance banks and the other microfinance institutions that seem to proliferate here?

Starting a business or a bank in any market whether it is home-grown or a foreign bank is never easy, especially in a market with existing players. The advantage we had that gave us a head start was being part of an existing group which has existing structures and defined policies and procedures that have been tested, reviewed and proven to work. So in essence we are not reinventing the wheel, so to speak. That was one of the advantages that we had. Then also being part of the group means you have certain synergies that you can leverage on. I think our biggest strength was when we came into the market; before we did anything else we recruited staff in advance. We hired staff before we even got our banking licence. We understood the challenges in the market. We didn’t want to come into the market and start headhunting people from other institutions. We wanted to train our own. so we had about a hundred people that we took to Kenya who stayed there and worked there for an entire year before we even started business, so that by the time we were ready to move forward with the bank, we had a critical number of people who understood the organization, the products and the processes. They became our cohorts in driving the agenda. That is why we are not struggling because we started out with people who had been working for the organization for a whole year. We started with two branches and opened three more branches within the first year. I think this is something that I would encourage, particularly in organizations that are have headquarters outside of Tanzania and they want to replicate their business model. I believe that the culture is fundamental especially when you want to transfer part of the head office culture into the new market. I think it worked well for us and therefore it wasn’t very hard for us in the beginning. They started with a drive and aggression because they had seen the success of Equity Bank in Kenya and other regions and they wanted to be part of that success story. Therefore they were self-driven and these are all local people that we took to Kenya and then brought back to make a difference in their own country. They were all fired up and I think that really gave us the momentum with which to start. In no time, everyone in Dar es Salaam was talking about Equity Bank because they had not seen this kind of energetic young people who had been out there and engaging with people who had done it and succeeded. It inspired them to say; we are going back home and we want to have a success story like the other Equity Bank subsidiaries. That really helped us to kick-start the new subsidiary.

Tanzania itself boasts a very vibrant and growing economy which is driven a lot by the private sector at all levels both formal and informal and across a multiplicity of sectors as well. Would you say however that the government in Tanzania is perhaps more cautious and slightly restricted than in other EAC countries and for example, how onerous are the ‘know your customer’ requirements that they have in place?

I wouldn’t say the Tanzanian government is more cautious than the rest of the East African governments. All I can say is that each of these governments and each of these countries are at different levels of development and they have different priorities depending on what level they are. Tanzania is in a unique position from Kenya or from Uganda and from what I’ve read the government is keen on making decisions that are of interest to the general public of Tanzania before looking at the larger east African community, which I personally think is a fair position. There are different levels and the priorities are different. Of course there is a point of convergence because of the regional presence, but each country has its own priorities and I think Tanzania wants to harmonize whatever is happening at the community level with whatever is happening at the home country level. It’s a matter of time before all the countries are at the same level of progress in terms of KYC. I think that particularly from the banking and financial sector services the biggest hindrance in regards to the KYC is a lack of a unifying identification for Tanzania. You have multiple identifiers. I know the government is serious about pushing a national ID project which I’m sure will move even faster now with the new initiatives the government is doing, but in the absence of that you have to find innovative ways of identifying a customer for the purposes of banking. They are not completely undocumented but there are various forms of identification so it’s a question of where do you strike harmony in terms of saying; this is acceptable and this is not acceptable. That subjectivity is what creates differences. What we have done as a bank is to know what the challenges are and we take steps to make sure that we positively identify customers. From the start we knew it was a unique challenge so we invested in a biometric identifier across all our branches. So in addition to your formal identification and capturing your digital information we also capture your biometrics and store them on our system. At that level, once we have identified you and captured all your data, if you provide any mandate or instruction to the bank, in addition to signing, you authenticate your instruction with your fingerprints. In that way the system is able to identify you. It has helped us and we have not had as many incidences of fraud in the market due to multiple identification because we use that as a control. We have managed to curb issues of duplicity and multiple identities at that level.

Would you say that overall you have been more conservative with your rollout in Tanzania than in other regional countries?

Not at all. If we had been conservative we would not have opened fourteen branches in four years. We have been in this market for barely four years and that’s a good average of branches per year. That is not conservative. In fact, we wish we could progress faster. If you remember, I said one of our key strategies is accessibility. Tanzania is a huge country. The geographical spread is vast and the population is scattered. If you want to transform the lives and livelihoods of Tanzanians, you have to be where they are, so access is critical. If we could spread faster we could give more Tanzanians the opportunities to access financial services and change their lives. So definitely not conservative. We are just being cautious to mitigate the risks that are unique to the market so even as we drive our ambition for growth we are not blind to the fact that there are certain risks that are localized here that we need to take care of if we are to move forward. You want to be flexible but responsible at the same time because you have stakeholders’ interests to balance and that is what we have been doing for the last four years.

Can you give us some insight as to how EBA is focused on riding the technological wave into a financially inclusive future and some of the serious competition pace from some of the other NVNO’s that are reaching very low on numbers of the same clients that EBA will be targeting (often with very similar financial products)?

I think the penetration of MNO’s into the mobile money space has taught banks and other financial institutions very valuable lessons. It’s about convenience. How can you make it more and more convenient for customers of banks to access your financial services? That is the convenience that mobile phones have brought in the MNO’s. The challenge is how do you transform or transfer or to what extent can you transfer the sum of all the products and services that people come to the bank to do into platforms that they are able to access easily. That is the challenge. I heard somebody say that in the future banking will be more something that you do than some place you go to. It is a challenge that we have taken on. Equity Bank’s technology journey started way back. We have invested a lot in a scalable IT platform co-banking system. We knew that from the beginning and I think we probably have the biggest IT spending in the region. Every year we scale up our IT for us to be able to accommodate as many of the diverse needs of our customers as possible. There are a lot of initiatives but we keep in mind to focus on how we can improve the experience that our customers receive because then it will be more convenient for them to use our services. There are already many initiatives in progress and we have also seen the uptake of Fintech companies and we already see valuable lessons we can learn from there. It’s all about convenience. at the group level. If you follow the story of Equity Bank, I think that at one point we said that if MNO’s are getting it right, why can’t we start an MNO ourselves and see whether we can bring that convergence of the MNO and the banking sector about much faster. That’s what led us to actually start an NVNO in Kenya through Equitel. The whole idea was to whether there could be a convergence of sorts. If you look at Tanzania for example, the banked population is barely 14% but the mobile banking is almost 60%. That gap is a cluster of customers, in my view, who aspire to be served by banks but because banks haven’t developed products that make it convenient for them, they are sustaining themselves through MNO’s and those are really small level transactions. Whoever forces that convergence of that critical size of customers by linking them to a bank will be the financial institution that will grow a lot faster than any other.

To what extent has the bank ridden the wave or been the beneficiary of enhanced regional integration and revival of the East African community?

Our regional presence gives us a unique proposition, particularly for customers who operate in the region. There is a lot of intraregional trade between Kenya, Rwanda, Tanzania, Congo, South Sudan and various other regions. We have covered that whole circuit and we are still continuing with the expansion. What that gives our customers is the flexibility of moving around these regions to trade and do business without the hassles of walking around with cash. What we have done is to provide a uniform platform in all the markets that we operate so if you have an account in Nairobi and you go to Rwanda, the teller or cashier in Rwanda will be able to positively identify you as if you are in your home country, because all the details are shared and they will be able to identify your signature, check your account balance, transfer money for you or withdraw money for you. It basically creates a single market driven by the bank. I think we should be the preferred bank of choice for any business enterprise that has a regional presence because we have such a unified platform for you to do your trade.