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Monday, August 20, 2007

Is Equity In Financial Problems As The Emails Suggest?

If you believed half of what you read in the emails that have been circulating about Equity Bank you would be expecting the bank to collapse at any time.

Based on the information I have managed to gather this is NOT true.

There are two main things that can cause a bank to go down. Firstly not being able to generate enough revenue and secondly non-performing loans in its' books. Equity suffers none of these two. Interestingly, according to confidential information that I was able to see, almost all the loans the bank gives are very small amounts to individuals and small business people. Meaning that even if some of them were to go bad, it would hardly leave a dent.

But the thing that shocked even me, was the revenue generation happening at the bank. WOW!! Let me simplify it so that everybody can understand.

Equity bank now has 1.4 million account holders. Any seasoned entrepreneur will tell you that when you have critical mass in numbers like these you can hardly go wrong.

Every time those 1.4 millions folks breathe, Equity makes money. Somebody makes a withdrawal and the Equity profits cash till rings. Some of them take short-term loans and again that means money pouring into the bank coffers (the bank still makes vast amounts of its profits from these small short term loans). With 1.4 million people, the numbers tend to add up pretty quickly. If those 1.4 million bank only Kshs 100 weekly the bank ends up with 140 million weekly. We all know that hardly anybody banks Kshs 500 let alone 100 bob. I was quite taken back by some of the truly amazing figures I saw.

In other words, one does not need to be a banking treasury expert to tell that this bank is not collapsing any time soon.

I was rather fascinated by the secret strategy that the bank used to get where it is today, which is incidentally still being used. Many of the account holders started off using the bank as their clearing to collect their salaries or for the purposes of banking their salary cheques. The bank would have staff go from office to office and door to door trying to sign up accounts for salaries. Now the problem that many bigger banks used to have was that people would always have to wait until their salary cheques cleared. Or you would have to kneel before an arrogant bank amanger just to be advanced a paltry amount against your salary chque which you have been bringing to the same bank for years. But at Equity you would take your salary cheque and they would quickly pay you against it (after confirming a few things first, of course). This little seemingly unimportant detail has won the banks hundreds of thousands of accounts. And when you really think about it, there was almost zero risk for the bank because they were simply discounting salary cheques and in effect lending you money for a few days in return for a small fee and you being grateful to them for life. Incidentally the bank still has its' people going round recruiting accounts, something other banks are only just now beginning to catch up to.

Some of you folks may be reading this and wondering what the fuss was all about. Actually you have to be a small man earning a small cheque with no friends in high places in Kenya to understand how revolutionary this small detail appeared to millions of ordinary folks.

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1 comment:

mmnjug said...

What Equity has done is to change the rules of the game. Thats why there is a sort of revolution in the Banking sector. But as human beings, we tend to pull down those who are doing better than us for no reason despite the fact that we will not benefit nor have the talents of the competitor.

It will go far.

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