The interview takes place against a backdrop of significant positive performance, as reported in the 2022 published financials. Equity Bank Uganda, registered significant growth, reporting a 32% growth in customer numbers from 1.222 million to 1.613 million and a 39% growth in the number of agents from 5,572 agents to 7,727 agents as well as 6,048 merchants. This fuelled a 21% growth in deposits from UGX 2.29 trillion to UGX2.76 trillion and subsequently a 6% growth in credit supply from UGX1.54 trillion to UGX 1.63 trillion. Increased deposits and lending fuelled a 22.6% growth in total income, from UGX382.7 billion to UGX469.2 billion. Again, thanks to solid performance in deposits and lending, Equity Bank was able to register a 20% growth in total assets, from UGX2.82 trillion to UGX3.38 trillion- a growth of UGX557.7 billion. The bank, however, due to an increase in provisions for bad and doubtful debts from UGX25.7 billion to UGX90.7 billion, had to take a 46.7% reduction in net profit, from UGX86 billion to UGX45.8 billion. Regardless, the bank made key market share gains in all other key fundamentals, closing 2022 as the third-largest bank by deposits and lending, 4th largest by total income and 5th largest by assets. In recognition of this, Equity Bank was designated by the Central Bank as a Domestic Systematically Important Banks (DSIBs) for 2023, joining five other vital banks who, together controlled 64.6 per cent of total banking sector assets as of the end of December 2022.
Equity Bank reported strong double-digit growth in 2022 across almost all major fundamentals. This growth is consistent with the bank’s steady 5-year double-digit CAGR across all fundamentals⏤ 23.5% in assets (the highest in the industry), 18.5% in lending, 25.8% in deposits and 22.1% in total income. Please give us a broad overview of some of the key drivers of this growth in 2022 and the period leading thereto.
Our growth in 2022 and much of the period before that, has been built focusing on building a great value proposition that is attractive to customers as well as executing excellently in customer recruitment/onboarding⏤ because it is the customers that provide deposits, a very important ‘raw material’ in banking.
One of the key highlights of 2022 was our heavy focus on the digital onboarding of new customers, via our *247# digital platform, which allows customers to self-serve by simply dialling *247# and in a moment, they will have a ready-to-use account. This was launched in February 2022. This was, supported by our continued investment in a robust agent network which grew 39% from 5,572 agents to 7,727 agents. As a result, we saw an explosion in customer growth⏤ by 32%, from 1.222 million to 1.613 million. Growth in customers, naturally fuelled growth in deposits. In 2022, Equity Bank had the second-biggest absolute customer deposits growth in the industry⏤ UGX469.9 billion.
The second highlight is Eazzy Stock, our one-of-a-kind collateral-free short-term digital lending product that allows businesses to access trade financing based on the exact value of their stock, both raw materials and finished products. The target clientele for this product are distributors, dealers, stockists, or retailers who are onward sellers of products or services of an anchor or manufacturer. The revolutionary Eazzy Stock today finances up to UGX10 billion daily short-term loans.
Important to note is that 2022 was also an investment year in terms of branches. We opened 7 new branches. I don’t think there’s any bank that opened that many new branches. We also invested in Infosec to further secure our digital channels.
The other key highlight and one that defines who we really are, in 2022 we stepped up our social impact investments inspired by our philosophy of transforming the lives and livelihoods of our people socially and economically by availing them modern, inclusive financial services that maximise their opportunities. This philosophy is built on two engines- the economic and social engines. In line with this, we made huge investments in social programs around agriculture, health, education and energy and the environment.
These are just a few of the many sustainable social-economic impact initiatives that the bank was and continues to get involved in because we believe we will do well by doing good.
Speaking of doing well, while doing good, the Equity Group last year launched the Africa Recovery and Resilience Plan, a mega post-Covid-19 plan. To what extent did that contribute to the 2022 performance?
The Africa Recovery and Resilience Plan was only launched last year, and it is still in the early stages. Last year was more about bringing partners together to realise the financing for the plan. To date, we have about USD30 billion, across the Group, that has been realised from over 25 development finance agencies and partners.
It is important to understand that Equity is not a messiah or a saviour. For this to work well, we need governments to be on board, we need certain policies to be in place, for example, it was a big win for DRC to join the East African Community because that expands markets and opportunities for all. So, last year was an introduction year and therefore had a very minimal contribution to our numbers, but I believe we will start seeing results this year. For example, we thought the oil and gas sector was going to move very quickly last year, but it didn’t, due to a number of issues, we believe it is now back on and we are now well-positioned.
As Equity, we have made it clear that we are not necessarily aiming for the top-tier players in the oil and gas sector, but rather are more interested in financing the value chain- the players who are servicing those at the top. We want to make sure everybody in the value chain gets something.
What are the core sectors that Equity Bank is focusing on this year and beyond?
Remember, the strategic objective of the Africa Recovery and Resilience Plan is to make financing available to over 5 million MSMEs and 25 million individual borrowers for the next 5 years, to create 50 million jobs indirectly in the ecosystems of those businesses that will be financed. Therefore we are targeting high-impact sectors, such as agriculture, which is at the top of our focus. We will have succeeded if 30% of that money goes to agriculture and the associated value chain. We are also looking at manufacturing and logistics as core sectors that increase value across most other sectors, including agriculture.
Manufacturing is for example vital to agriculture because it increases value and capacity. Instead of just pushing cocoa beans, we can for example make and export chocolate and maize flour instead of maize grains. When you export maize flour, you not only earn more value, but you also retain other by-products such as maize bran and other byproducts that can be used in bioenergy. So we intend to go into not only primary agriculture but also look at post-harvest, marketing, logistics, cold storage etc.
We are also looking at trade and investment facilitation, micro small and medium enterprises as well as social services such as health and education, as well as the environment.
Speaking of health, we are also looking at protecting our clients with innovations in micro-insurance. For example, we are making it possible for an SME or a butcher who has a daily turnover of UGX200,000, to be able to put aside UGX1,000 every day or UGX30,000 a month to be able to cover their family against common illnesses, that may eat into his business if they were not insured. We are working with insurance partners to push micro-insurance, to democratise insurance using our vast distribution channels.
Equity Bank is one of the big-time investors in financial technology and is building a big and relentless digital banking machine, especially agent and mobile banking. How significant is this to your larger financial inclusion agenda? Where do you see the future of conventional branches?
Brick-and-mortar branches will certainly remain- but for high-end transactions and relationship banking, and those coming to make complex transactions. All other segments will move to digital channels.
The ease with which customers can now open accounts- by dealing *247#, as easy as opening up a Whatsapp account and the ease with which customers can make most of the transactions that they used to do in the branch, will continue attracting more people to the digital channels. We thank the Government and the regulator which have made it easy by allowing us to interface with the National ID system, thereby allowing us to do KYC. Customers can now open an account at any time of day or night on whatever device. Of course, there are limitations such as digital literacy and customers who still value human interaction etc., as well as customers who do not have or have lost their National IDs, but our number one recruitment channel will be the *247#. It is easier and cheaper and as we scale even the cost of banking will come much lower.
You have said, in your strategy, you want to do 5 million customers by 2025. Isn’t that too ambitious given that for the nearly 15 years you have been in the market, you have only garnered 1.613 million customers? How are you going to pull off this miracle?
I actually think that target is soft, if you benchmark on the telecoms industry because almost everyone who has an active SIM card is a potential customer. According to the Bank of Uganda, there were 25.4 million 90-day active mobile money users. How did they achieve that? It is because of the convenience and simplicity afforded by technology. As I said earlier, by just dealing with *247# and having your ID Number, you get an instant account and start transacting. Remember the bulk of our clients are younger and more familiar with opening accounts digitally- in their other lives so it is going to be easy to convert them. E-Commerce is also taking deep root, giving more impetus to the digital finance revolution.
Let’s talk about the Equity Leadership Programme (ELP), which is hailed as a one-of-a-kind social impact programme across the Group. What is it exactly about?
The Equity Leadership Programme, a brainchild of our Group CEO, Dr. James Mwangi, CBS has been running since 1998 in Kenya. In Uganda, it is now in its third year. In fact Mr. Samuel Kirubi, previously the Uganda Managing Director and now the Group Chief Operating Officer is ELP 001. He rose from internship to become a CEO- the founding Managing Director of Equity Bank Rwanda in 2011, all in 13 years, partly due to what we believe is the strong foundation of the ELP.
Basically, the ELP is about shaping the next generation of leaders, not just for the bank, because we recruit from various fields, but for the region and the continent.
We go to the Ministry of Education and with their help, we get the best-performing two students in each of the districts where we have branches. Kampala and Wakiso where we have more than one branch, get slightly a bigger allocation. We prefer to get these students in their Senior Six (6) vacation. We take them in for a residential week of onboarding and leadership mentoring and thereafter put them on a path of mentoring and support as well as paid internships throughout their university. By the time they are done with University, they are ready to face the world. We teach them the Equity way. A leader will see a situation and do everything in their power to address it or gather people to address it. It requires a certain level of braveness, fearlessness, and mental (you must be smart enough to figure it out) so we take them through that.
We introduce them to the bank, teach them discipline, how to be professional and all the other different life skills which they need in adult professional life e.g delivering a delightful customer experience, basic accounting, financial services understanding, sales, marketing, operations etc. We give them a level of operations leadership to some extent and teach them interpersonal skills, time management, and everything a leader will need. They are then attached to different branches. For example, cohort one has emerged as a powerful salesforce in our account opening because they are tech-savvy. We monitor and track their performance and give them feedback. Of course, we give them a decent stipend for their services, effort and time. Cohort one has also proved to be important mentors for cohort two.
In Uganda, we have just started, but Kenya where the programme started has an army of about 40,000 alumni spread across the country and the region. In the medium term, Equity Uganda is targeting to reach at least 10,000 Uganda- imagine an army of 10,000 well-groomed Ugandans with the right leadership skills and mindset. The transformation of our country is immense.
Of course, you could say 10,000 out of a population of 40++ million Ugandans is small, but I keep saying, Jesus only needed 12 disciples to change the world and Prophet Muhammed was alone. So you don’t need everybody to change the world. You just need a few people with the will and mindset to do it. These young people need inspiration and a chance and they will fly.
Everything you have said seems to be going so well for you. Do you have any challenges that need to be addressed⏤at the bank or industry level? And what kind of help would you need?
Of course, there are some challenges, for example, the world of fintech is moving so fast, yet in some cases, regulations haven’t caught up with practice. But thankfully, we have an understanding and flexible regulator. For example, when we were trying to do digital lending, the standard practice has always been that for every loan, customers must have a Financial Card from the Credit Reference Bureau. To get this card, one has to go to a bank branch, get their biometrics taken and pay UGX15,000 per card. For someone seeking to borrow for example UGX100,000 or UGX300,000 digitally, this would make so much sense, so we engaged the Central Bank and lifted this requirement for anyone seeking to borrow less than UGX1,500,000. Anything above that would require a financial card. So the regulator has been willing to give us a chance to experiment with some of these innovations and then pick lessons that can be used to better the solutions.
In the face of AI, virtual reality, machine learning etc, we will need more of these sandbox settings because, in some of these areas, there may even be regulatory grey areas.
We also need harmonisation of the tax regime as well as improvements in the National ID system to improve our KYC. From an AML perspective, we need regulations to be up to speed with the dynamic nature of fraud such as information sharing. Of course, we have seen a significant reduction in the number of fraud cases and incidences as the different players especially banks and telecoms begin to work together to share information but also sensitise the customers and the public. While on our end, we have tightened up, many of the fraudsters have been taking advantage of customer ignorance to trick them into losing their money. We also need to work together as the digital payments ecosystem to grow consumer confidence around digitization, because we can’t go back to where we used to be.
There is also a lot of work that needs to be done on internet speeds especially across the country, to make digital banking a more pleasant experience. We believe with the onset of 5G on the continent, things can only get better.