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> Posted by Ira W. Lieberman, Todd A. Watkins, and Anna Kanze

We’ve identified the problem: Microfinance is no longer sexy. It’s old news. It can’t deliver “impact,” and its effect on alleviating poverty was oversold and has underwhelmed. It’s well and good to offer working capital loans, but at the end of the day, the poor need education, health care, water for drinking and irrigation, roofs, and electricity together with a wide variety of financial services. It’s time for investors seeking real innovation to move on to the next big thing that will transform the lives of poor people and save our planet. Never mind microfinance’s decades-long track record of listening to the poor and underserved clients and effectively developing products and services based on their needs.

Of course, we issue these statements with considerable sarcasm. But, all joking aside, industry trends and shifting sentiments are presenting investors with a real question: Should they abandon the reliable and successful platforms and infrastructure that microfinance institutions (MFIs) have built? In turn, MFIs are saddled with the question of whether to stick to what they know best, or instead, to use their platforms to deliver expanded product offerings that increase access to other essential services.

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> Posted by Shaheen Hasan, Manager, FI2020 at CFI

The “customer centricity” mantra has become a common refrain among donors, policymakers, practitioners, and providers working on financial inclusion. Indeed we would be hard-pressed to find anyone working in the sector who wouldn’t identify him or herself as focused on customer needs. In the Addressing Customer Needs section of the Financial Inclusion 2020 Progress Report, however, we report that the number of financial service providers who are actually investing in and implementing these ideas at a scalable level are still few and far between. Although the truly customer-centric organizations are in the minority, we found a host of good examples, and we highlight some examples we like in the report.

A critical element of addressing customer needs is building the right consumer insights infrastructure to gather and translate data into better product offerings and the targeting of new market segments. Organizations use a multitude of methods to assemble insights. Some players, such as Equity Bank in Kenya and Tigo in multiple countries have built up in-house research capabilities. Banco Azteca in Mexico, for example, has one of the most sophisticated market research systems to amass and analyze information on customers. It has used that information to build up a clientele of millions of savers, borrowers, remittance receivers (and some senders), and insurance policy holders. Janalakshmi, an Indian microfinance institution, with the support of CGAP, developed a tool, Kaleido, which utilizes its front-line staff to get a “360 degree” view of a household, providing a rich source of data for developing new products as well as assessing the financial progress of a household.

With increasing availability of data on client behavior and new techniques to analyze that data, there is a rich wellspring to mine for insights relevant to market segmentation, product design, and delivery improvements.

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> Posted by Bruce MacDonald, Senior Vice President, Communications, Accion

My first love was Susan Morasky, but my second – and far more enduring – has been Africa. For that I credit Mrs. Walden, my third-grade teacher, who encouraged us to think big.

Sadly, even the loves of your life can let you down. In Nairobi last week to promote the Africa Board Fellowship, our new program on governance for sub-Saharan MFIs, all went well. Until, that is, I tried to go home. A 20-minute taxi ride to the airport became an hour, then two, then four.

I missed the KLM flight to Amsterdam, and of course the connecting flight home. As I sat in the cab, fuming in First-World frustration, I peppered the driver with questions. “What’s the cause of this?” Rain. “Can’t you go another way?” This is the only way. “Where are all the policemen directing traffic?” Incoherent response. And, finally, snippily, “How on earth do you people put up with this?” Obviously embarrassed, he finally stopped answering my questions.

Everything’s relative, especially in Africa – something I should have remembered, given the banking and finance conference I’d just come from, and the presentation by Amish Gupta, head of investment banking at Standard Investment Bank in Nairobi.

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> Posted by Monique Cohen, Independent Advisor, and Founder of Microfinance Opportunities

When an Equity Bank client in Kenya was asked if she saw value in financial education, she replied without hesitation, “Yes, but I thought it was only for rich people.” Delighted with this ringing endorsement the interviewer never asked her what financial education meant for her. If she had we might have gone down a different track.

Intuitively, financial education seems like a good thing. Many experts will tell you that it or financial capability are important for achieving financial inclusion. Yet, the research tells a contrary story: financial education, building financial literacy, or financial capability interventions in developing countries have little effect on changing financial behaviors, including the uptake and usage of formal financial services. I keep asking: What am I missing in this picture? Why doesn’t it add up? With 12 years of experience in this space I would argue that there is much confusion about what financial education is, what it can do, and what we want it to do.

Financial institutions have much to gain from effective financial education, as, of course, do clients. At present, however, the field is torn between two paradigms – a money management paradigm and a product usage paradigm. Though both have merits, neither gets it quite right. I propose a more client-led perspective as a way to ensure that financial education can become more meaningful for the user.

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> Posted by Rishabh Khosla, Tahira Dosani, and Vikas Raj, Accion Venture Lab

Small businesses are the engine of employment, contributing up to 85 percent of new full-time jobs in low-income countries, and two out of three new jobs in countries like the U.S. The IFC finds a strong correlation between the health of the small business community, economic growth, and poverty alleviation.

Despite these Herculean responsibilities, micro, small, and medium enterprises (MSMEs) the world over struggle to access the financing they need to maintain cash flow, hire new employees, purchase new inventory or equipment, and grow their businesses. The IFC estimates that the unmet demand for MSME finance in emerging markets is $2.1-2.6 trillion (around 1/3 of outstanding loan balances to this segment). Unlike larger firms that can access capital markets, MSMEs must seek financing from banks or non-bank finance companies (NBFCs). Yet traditional lending approaches often fail to address this “missing middle” because the cost of diligence and underwriting is too high relative to the potential revenues from the smaller loans that MSMEs need. This situation is worse in emerging markets because of a lack of reliable financial data and high levels of informality. According to the Harvard Business Review, the financial crisis only exacerbated the situation: borrower balance sheets are still recovering, and banks, faced with new regulatory requirements, have reduced the share of lending to MSMEs in 9 out of 13 OECD countries.

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> Posted by Center Staff

Equity Bank, Kenya’s largest bank by customer base, has applied for a license to operate a mobile telco business, a move that strongly suggests intent to enter the mobile money space. If realized, the bank and its 8 million customers could significantly disrupt M-Pesa’s current domination of the country’s market and help drive competition and innovation.

Given the type of license being sought, Equity Bank would not build a new telecommunications network, but would instead partner with one of the country’s prominent telcos and deploy services using this partner’s infrastructure.

Safaricom’s M-Pesa currently has a commanding hold on mobile money in Kenya with 21 million subscribers, covering roughly 75 percent of the country’s adult population. If Equity Bank’s customers were to subscribe to the in-house mobile money service in question, it would be positioned as the second largest in the country.

We look forward to the decision on Equity’s license and the action to follow.

Image credit: GSMA

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The views and opinions expressed on this blog, except where otherwise noted, are those of the authors and guest bloggers and do not necessarily reflect the views of the Center for Financial Inclusion or its affiliates.