KCB: A Bank Interconnected With Kenya’s Economic Development

Interview with Joshua Oigara, CEO of Kenya Commercial Bank (KCB)

How do you assess the banking and financial sectors in Kenya at the moment?

Obviously, we had a difficult year last year and during the last quarter, largely because we have had a number of difficulties with many institutions. Three banks were put under management of the Central Bank. However overall, we have 43 banks today; it is a very strong and dynamic sector. It is actually the most advanced sector in the continent in terms of sub-Saharan Africa, so not including northern Africa i.e. Egypt, Algeria, etc. We are perhaps the most advanced in terms of technology, financial access and financial inclusion and in terms of having created mobile payments as a platform for customers to access their funds. That is what this sector has done. In terms of growth, the sector is growing with double digit growth, and it contributes to more than 10% to the economy today. I am very upbeat about the opportunities and the continued growth in the sector despite the difficulties that we have had in the last quarter of this year.

43 banks is a lot.

Last year, we introduced a new product KCB M-PESA, where our customers are able to introduce their services and gear their facilities using a mobile platform but in partnership with the largest telecommunications company called Safaricom.

It is too high if you ask me. If you look at banking per capita, we have a population of about 43 or 44 million people so with 43 banks we are talking about one bank per one million people and further more banks get customers from just the adult population. If we look at our assessment in a global sense, Kenya is definitely over banked and we have to find a way to create synergy in these services. There is definitely going to be consolidation in the industry in my view and that is one way to enhance innovation, lower the cost of services and deepen the access to the entire financial sector. It is going to happen; we have seen it happen in other markets, it happened in Nigeria just a few years ago. I don’t think Kenya is an exception. We see the industry emerging in the provision of services. What matters today is not whether you have a bank or you have a branch, it is whether you can deliver the services to a customer today wherever they are. Customers are banking on the go. The days when customers were coming in to the bank to do their business are becoming fewer and fewer. If you can enable customers to run their own business and activities and get services from you wherever they are, then you are becoming a catalyst for the transformation of their lives. That is what the banking of the future will be.

What is your bank´s strategy?

A lot of things are happening in our industry today. I don’t think there is just one solution. Customers are very diverse. Customers can approach us today from many different avenues. Our digital financial services and mobile payments space has been the greatest enabler of activities for our customer profile. Last year, we introduced a new product KCB M-PESA, where our customers are able to introduce their services and gear their facilities using a mobile platform but in partnership with the largest telecommunications company called Safaricom. We were able to recruit 6 million customers in less than a year. Globally this is the fastest growing solution ever in the market: 6 million customers in a period of 12 months. We are able to register our customers on the mobile platform i.e. using any mobile device. That means that the bank is in the palm of the customer´s hand and they are able to send money, deposit funds, get credit facilities, etc. We have created a mobile algorithm whereby our customer can be credit scored using mobile information and get access to credit. You don’t need to come to the financial institution anymore. I think this is the way the world is going. If you use new models of information sourcing and you can analyse them, then you can easily do credit scoring for your customers. We did 100 million dollars of loan facilities last year on our mobile platform alone. The customers never had to come into the bank. It is like day and night. I can challenge any country in Europe, Asia or the United States when it comes to the access that our customers can get from the mobile platform. We are perhaps sitting on the global centre of innovation for mobile payments.

So the access to credit is based on a behaviour scoring model?

Correct.

So people don’t need to fill in lots of forms…

You have to imagine where the market is going. This is where digital financial services are going. Mobile has been a big part of the communication with our customers, not only that but the payments they can now make, enabling our customers to pay for services whether it is paying for a restaurant or whatever kind of point of sale payment. Also, the information we get comes from when you go to agencies, which are small businesses out in the rural areas which aren’t branches but can accept banking services. We have more than 10,000 agents working for us. The reason why I believe that algorithms for the financial services today are a real innovation is because you assess a customer´s credit score based on his behaviour not because they have securities, not because of the number of years they have been with you, etc. In this way you can enable financial access for customers that traditionally would never have had a single point of access. This is a breakthrough, this is innovation, this is a transformation! For us it now means that we can start creating a new market space. If you can do 100 million dollars in one year, with an average loan size of 25 to 30 dollars a week per capita, then you start accessing the SMEs, the micro enterprises and really the face of Kenya. We are actually contributing to economic expansion in this country and the GDP expansion for our region.

This goes in par with helping the start-ups, training, etc. What is your input?

This is a major catalyst that will bring change across the continent. We are operating in Kenya, Uganda, Rwanda, Tanzania, Burundi, South Sudan and now we have a new office in Ethiopia. The challenge today is finding opportunities for the younger generation. The average age in this region today is 19 years old. We have a really young, bubbly, energetic, educated population but they have few opportunities. You have to find out how you can transition them to being real enablers of progress for your country. We have launched a program called Skilling for Self-Employment. We have set out 500 million dollars for this project over the next 5 years, so 100 million dollars every year. It is about training, capacity building, up scaling, incubation and launch to market over 18 months for 2.5 million entrepreneurs. It is a very ambitious program to try and give the skills and knowledge that you need today and to show you the modern way that you can do your financing, which is very competitive and it will link you into the market. That value chain approach can unleash new businesses. To give you an example, if you are a supermarket store, you need to find a supplier for your vegetables, as you don’t know where to get them because you are a small start-up and you have no idea where to get your suppliers, we will link you up, give you the training and knowledge, the funding and we will open up the supply. We will create the market for you. We will give you the skills to run your business. By creating one business, we believe you can employee five people. Since January we have been working with our first 2500 cohort of young entrepreneurs. For me, the most exciting thing is to see these 18 or 19 year olds saying that in the next few years they want to have ten or five employees. We are creating the skills to become employers. That for me is the biggest innovation you can get. If you look at all sectors, for example hospitality, housing, construction, mechanics, engineering, ICT, agriculture, etc., the model works for all as long as they all have a value chain approach. This will be an innovation, in my view, that can change the lives of individuals in this continent. We have close to 350 million young people today and so we are looking beyond just the Kenyan challenge, this is a belief about the race for transformation using youth.

Let´s now talk about investment opportunities in Kenya. What sectors show good opportunities?

If you compare to our peers globally and in the continent, Kenya doesn’t have another peer on this continent in terms of the opportunities for investment. If you look at the last two years, the country has been growing between 5.6 to 8%, and it has been growing at more than 5% for the last four years. There are a lot of skills and capabilities here. Knowledge is a huge resource. Kenya has a large services economy. Skills and talent are a big part of it, technology also, if you think about M-PESA for example, and most mobile financial services and the digitisation of financial transactions, it is all being done here. We are exporting those solutions across the continent today. If you come to Nairobi, the top 40 organisations are all international companies which have their headquarters for the continent based here. I would say that four sectors have come up very strongly. Firstly technology: ICT in Nairobi today is the Silicon Savannah. We can create the innovation, the solutions, we have the skills. Name it and we can create it for you within Kenya. There is not another city or country on the continent that can deliver that. Tourism has also been a big part of the growth across the country; you are talking about Maasai Mara, Mombasa, etc. Energy is also a new sector for growth today. There is manufacturing, housing, horticulture and agriculture, trade and services. The port here is a huge corridor. We see Kenya as a natural hub for accessing the eastern and central African regions. There is a corridor from Mombasa to Nairobi, to Kampala to Kigali and to Goma in the DRC. It is a natural corridor for you to do transactions. There is no other such location that you can invest in. We have free access to the market; Kenya is an open economy. Look at our currency behaviour in the last 2 years, one of the best performing currencies on the continent is the Kenyan Shilling. Nairobi is a very global city; you could compare it to Johannesburg or London today. That gives opportunities to invest. The country is ready. We are pushing towards growing at 10%. The country´s Vision 2030 is to build the growth up from the current 5 or 6% up to 10% by 2020. Globally there are very few countries that can give you that opportunity and global connections.

In which areas is the bank very strong as a financial institution?

We are a large corporate bank so we do a lot of trade finance. KCB enables a lot of trade services between Kenya and its neighbours. If you look at the regional economies today, our biggest export destination is Uganda. More than 40% of our trade is going to the east African region. We also export into Europe and into the Middle East. We are the largest bank when it comes to trade services. We have been doing this for many years. We have strong relationships to support our customers so naturally we can deal with large customers, small customers and medium customers in trading. We also do a lot of financing for the manufacturing sector; that means creating new products and services for export and for the local market. Products going into the US market for instance are financed by us. We also are a large bank for individual lending in terms of mobile platforms, so the micro loans and the micro economic sector is an area that we lend to which can include agriculture and farming, the education sector, tourism, etc. We are also starting to lend in the oil and gas sector. Housing is a very new area for us especially the low cost housing sector. I would say it is early days for that; it represents less than 10% of our business. Lastly, we support SMEs, which is an area that we are aggressively growing. Today it is 10% of our business. The program we mentioned to empower youth and give them opportunity, should increase our involvement in the SME sector to 25% over the next 5 years; it may be the single largest part of our bank in the next few years. I am a strong believer that the greatest businesses of tomorrow are today’s small businesses. That is why we have to invest in them today in terms of resourcing capacity and energy and that will give us a chance to play big in the next coming years.

What about public financing?

We do a lot of public financing, so infrastructure financing for roads, energy, highways, ports, telecommunications, etc. That is a big part of our work. Public financing also includes education, public schools and universities. That is an area that we do. We are a large bank for large customers, we are a medium bank for medium customers and we are a good bank for small customers and also we are a good lender to individuals. We are a universal bank. We are, as I said, largely a trade finance bank; that is the biggest part of our business. The area that we are very catalytic about today is using mobile and digital services to enable our customers to borrow, to pay, to settle transactions and be able to grow and expand in the region. There are great opportunities in Ethiopia for instance where we have set up our business last year. We are in the early stages. We see our business in the region as a continuum. It is not a one size fits all. Each country has different levels of progress, some are running much faster than others, for example our business in Rwanda which is a much smaller country, some like Tanzania are much larger countries so the pace is different, and Ethiopia is one of the largest countries by population in Africa. I think our role as a bank has been to connect trade and services within the region.

How do you interact not only in these countries you mentioned, but also internationally with your partners?

We see it differently. We look at regional businesses here, so across the countries that we are in working in eastern Africa, we look at them as businesses without boundaries. There are of course boundaries but our business enables trade and activities irrespective of where the country is. That for me is the most critical innovation that we have done within KCB as an institution. If you are in Kigali today and you want to make a payment in Mombasa to collect your goods that are at the port, you can do the transaction from Kigali to be cleared in Mombasa port. Traditionally you had to be in Kenya to make that kind of transaction but you don’t need to today. If you look at global connections we are connected to over 200 correspondent financial institutions across the world. We do that for trade services but we also connect a lot with our diaspora. So our diaspora banking model gives customers in North America, Europe, Asia, China, Africa, etc., the ability to get their money back home. These are good opportunities in terms of our connections. We also have long term partners with long term lenders, so the development financial institutions, people like IFC, the European Investment Bank and investors from China. Kenya is very connected to the global economy. As a financial institution, KCB is very much catalytic in enabling those relationships to happen. I am excited to see that there is no place in the world that you cannot do business with via KCB or in Kenya through our partnership.

What is your assessment of the current economic situation in Kenya in 2016?

Our economy is extremely resilient. It is one of the few strong, solid economies. I like comparing globally and with the emerging markets. In our case we look at countries like Nigeria for instance which was a very well-known growing economy but is seeing difficulties now. South Africa was very strong economically but it is seeing difficulties, there was Zambia before that, Ghana also… We are not very dependent on one particular sector. For instance we are not mineral dependent, we are not commodity dependent and we are not oil dependent. We are kind of a mixed bag and to be honest if you want to build a resilient economy you build a mixed bag. No single piece of your economy should be too large to impact the economy if there is a normal economic shock in the cycle. Kenya has proven in 2015 and 2016 that this model is working. That is why I said earlier that Kenya is a go to market in Africa for investment. In terms of FDI we were number one in the last quarter of 2016 across the continent in sub-Saharan Africa. Now that tells you about the opportunity in this country. In terms of growth, Kenya’s growth has been very deliberate, it was not an accident; it has been a result of our growth model since 2003. It has been a planned and engaged growth. Infrastructure was a big part of growth. I think there are two things you must do for a country to really open up: you need to do your road network and you have to provide power and energy. Then you can enable smaller businesses to run. For the last five years, the country has been building the railways, the roads, the highways and the ports and it has been done on a national level. That is a big part of our growth. Most projects are coming to an end now.

Kenya is achieving almost 45 to 50% power connection across the country. That is the highest level in the continent. We are also investing a lot in renewable energy: geothermal and wind power. We are leading in this as a country. If you are looking at areas that can be more global, you have to look no further than Kenya. The curb is coming up, three years ago we had 4.5% growth and now we have 5.6%. I haven’t even mentioned agriculture; there are major projects with irrigation and other huge projects for horticulture and agriculture. That will catalyse growth to more than 10%. I am not sure if any other country except Ethiopia can offer the high single digit or low tens growth that Kenya can offer. I am quite optimistic. I would like to say that growth requires skills that can be globally benchmarked. Without skills a country can never develop, whether it is ICT skills or education skills. There must be the enthusiasm to push yourselves to the global benchmarks. What I get excited about when I speak to many people in our country today, especially the young people, is the audacity to become global. You can be a great champion in the village, but you may never play in the global arena. When Obama was here last year speaking about entrepreneurship, we saw entrepreneurs providing solutions that address the global problems of today. It is an exciting moment to be here today. We have a fantastic region; Kenya is able to provide solutions and services and products to its neighbours in the region, to over 200 million people. That for me is the strength of this economy to continue expanding for the next 5 years.

What is your vision for KCB in the medium term?

KCB is very much interconnected with the country´s development. If you look at our history, we have been involved in building the first East African railways; we were involved in building the first bridges and the first cities. When you look at national development you see KCB’s involvement in financing, structuring, trading, importation and services. We have been doing that for the last 120 years. What we see happening now is a push towards using technology, particularly mobile and online digital services to enable customers to do their services. That is what is going to be the biggest outline for our business in the next few years. You are going to see a much more digitalised financial institution because that is where our customers from the next generation are coming from, not just in Kenya but across all of our markets, in Uganda, Tanzania, Burundi, South Sudan and Ethiopia. We see ourselves growing into the Democratic Republic of Congo as it is a key market for us. Our ambition is to build our business within eastern Africa. We would like to provide services for our customers across the entire region. Our model as a bank is to be the preferred financial solution provider in the region where we operate and with a global reach. That is what we want to do. We are still the largest bank in our region today, and we see ourselves being one of the top ten financial institutions in the continent by 2020. That for me is very exciting. I want each of our customers to have frictionless and boundary-less services within the markets where we operate. That is the KCB we will see in the next few years.