Even as the price of Equity Bank shares on the Nairobi Stock Exchange appears to be recovering over the last few days, somebody is forwarding nasty emails warning Kenyans to stay away from the bank.
The reason I find this interesting is that I have carefully studied the growth of Equity right from the time it was launched as a building society in the Moi days. I correctly predicting that they would one day be very big, because they did the opposite of what other banks were doing at the time and targeted the ordinary mwananchi. As you read this, the bank has got over one million account-holders, a record in Kenya.
The way to analyze a company is to look at how it makes its' money. As a rule I will never invest in a business that I do not understand. Equity's major profit generator is small loans to ordinary folks. If you understand the principal of compounded interest you will quickly realize just how wildly profitable this activity can be.
So the foundations of Equity are basically sound.
The rapid branch expansion program makes a lot of sense based on the bank's principal activity which it has gained experience and expertise to do.
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And it is because of this reason that the government has chosen Equity Bank as the main bank to disburse loans to budding entrepreneurs. But some very bad people have chosen to politicize this issue. On this one, I defend the government. The government DID NOT choose Equity Bank because it is owned by Kikuyus. Just name me a more experienced bank in Kenya when it comes to giving out loans to small business? There is none. Equity stands alone.
So who is this circulating those nasty emails? Maybe to answer that question we need to ask another one. Who has a motive? Who is bound to gain?
While you chew on the answer to that one, this whole episode reminds me of the mid eighties when some characters within the mainstream banks spread rumors about the collapse of Diners Club Finance a subsidiary of the local Diners Club franchise run by Alnoor Kassam of TradeBank fame. Legend has it that the bank handled it by getting all the cash they could get their hands on and paying all those who came in to close their accounts. After a hectic anxious day of doing this, it is said that the same account holders returned their deposits the next day on realizing that the rumors had to be false since the bank appeared to be so liquid.
If it is true, the Diners Finance tale is indeed unique because the truth is that no bank in the world can stem a run by depositors. Banks always put idle funds to work, it is the way they earn their keep so it is impossible for all depositors to draw out their money at the same time, the bank won't have it.
It seems that somebody is very determined to cause a run on deposits at Equity Bank and it would seem that that person maybe an executive feeling the heat in the most profitable segment for banks at the moment—small short term loans.
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