Written by Graham A.N. Wright and David Cracknell, released Spring 2008 as Briefing Note No. 63, a publication of MicroSave, 2 pages, available at: http://www.microfinancegateway.org/content/article/detail/49430

In 1993, the Equity Building Society was a mess. Technically insolvent, having poor board oversight and incapable management, the predecessor to Equity Bank of Kenya saw a 54 percent non-performing loan portfolio, KES 33 million (USD 500,000) in accumulated losses, and liquidity of 5.8 percent. Today, it is the highest capitalized bank in Kenya with USD 250 million of equity, two million customers, and plans for expansion. This paper finds seven lessons to be learned from the remarkable reversal of fortunes for Equity Bank.

The overall theme is that the bank has been able to successfully manage an environment of continuous change. With the help of outside consultants, it was able to implement new or refined products and procedures, new credit strategies, and a “strategic alignment approach,” in which it developed a mission, values, and vision along with a specific plan in 2004. Within a year, the organization ensured that all employees were aware of and bought into this plan. The bank also re-tooled its Board of Directors in 2000 and invested heavily in new IT teams and systems.

The first lesson is a commitment to customer focus. Equity employed strategies that included marketplace marketing, social and community activities, product re-pricing, longer hours, manager-customer interactions, customer surveys, and the implementation of a new IT system that drastically cut customer service times. All this was a survival-instinct approach to establish grass-roots, relationship-based banking.

Lesson two is the bank’s ability to market itself via word of mouth and focused public relations. Instead of spending large sums on expensive marketing tools, it has relied on the “buzz” generated from customer word of mouth. Also, managers and staff have gotten involved in community meetings, press releases have been used to build the company’s image on a national level, and senior management have attended key events, such as the African Business Leaders’ Forum – all of which have aimed to cement the Equity Bank brand.

The third lesson has to do with instilling a corporate culture. Since 1993, there has been an emphasis on a professional demeanor and dress code on the part of employees, and a set of core values for the bank has been defined.

The next lesson is the optimization of corporate governance practices, one of Equity Bank’s major weaknesses cited by the Central Bank of Kenya in 1993. In 2000, four new Directors were introduced to the Board, and a year-long process through 2005 developed a Code of Corporate Practices and Conduct for each member to abide by. Each Director is also subject to a bi-annual performance assessment.

Lesson five is Equity’s management of donor inputs. The bank has been the recipient of sizable grants from international organizations; in 1997, it received KES 70 million (USD 900,000) from the European Union-funded MESP program for on-lending, staff training, and study tours, and funding received in 2000 from UNDP-MicroStart was used to strengthen the bank’s operations. A steering committee was created to manage these inputs, and the relationships established between Equity and donors have consequently helped boost the bank’s market reputation.

The sixth lesson is Equity’s commitment to remaining broad-based. This involves the maintenance of mass market delivery channels; Equity has been expanding its national presence by means of branches and ATMs, with more ATMs installed since 2006 than any other Kenyan bank. Also, so-called “mobile branches” have been deployed to serve rural areas.

The final lesson in Equity’s transformation is its human resource management. Often times the bank has had to look to the outside for its human resource needs, and it has had to be deft about creating new positions or reassigning longer-serving staff to make room for new hires. Those new hires who struggle with adjusting to Equity Bank’s culture, meanwhile, are given adequate time to do so and, if they cannot, are encouraged to leave the bank.

By Stephen Son