The Base of the Pyramid
Entrepreneurs play a vital role on the front lines of Africa’s economic growth and development. In Kenya, small and medium enterprises (SMEs) employ almost 80 per cent of the workforce and contribute less than 20 per cent of gross domestic product (GDP). Supporting these businesses so that they can increase employment and economic growth in their communities is one of our bank’s primary goals. As a result, SME financing is a significant segment of our operations, with entrepreneurs making up over 40 per cent of our customer base.
Last year, Equity Bank made 166,000 SME loans valued at over $680 million. Recently, we completed a $100 million funding agreement with the International Finance Corporation to provide a facility to extend our SME lending portfolio with a special focus on women entrepreneurs. These loans offer fair pricing and terms and are coupled with the provision of advisory services, which provide African entrepreneurs with the capital they need to expand their businesses, and create local employment opportunities, wealth and contribute to the growth of the region.
The vast majority of Kenya’s entrepreneurs are in the informal sector. Tailoring financial products for the millions of unbanked and poorly banked customers in Kenya and throughout East Africa requires new approaches and innovative solutions. Using non-traditional credit and risk management methodologies, repayment schemes, loan amounts, and guarantor and collateral terms, we have designed creative, low-cost solutions for five distinct segments of the base of the pyramid (BOP) market: consumer, agriculture, micro-enterprises, and SME.
In 2011, these segments accounted for more than $1.08 billion in financing through 745,000 loans. These included over $370 million in consumer loans, enabling 570,000 individuals and households to pay for life improvement goods and services, such as school fees, medical expenses, and repairs.
Our work with farmers is illustrative. Agriculture is a key component of the African economy; in Kenya, farming accounts for 25 per cent of GDP. The capital we provide to smallholder farmers enables them to purchase high-quality inputs that improve their productivity and efficiency. Last year, we invested over $39 million in 88,000 agriculture loans to smallholders, processors, manufacturers, distributors, and retailers. By lending to multiple stakeholders across the agricultural value chain, we reduce our risk exposure while also deepening our financial support of the sector.
In addition to our lending activities, we provide financial literacy training to smallholder farmers and other BOP customers. At present, youth—who account for over 60 per cent of the population – constitute 70 per cent of Kenya’s unemployed—a staggering figure. In partnership with The MasterCard Foundation, we created the Financial Knowledge for Africa (FiKA) initiative to educate youth and women entrepreneurs. The free 12-week training program provides grounding in basic financial concepts as well as advice on starting and growing a business, and has successfully trained over 380,000 Kenyans to date, with the goal of one million by 2014.
In another innovative partnership, we collaborated with Brookside Dairy Limited to provide loan facilities and financial literacy programs to 100,000 smallholder dairy farmers in six regions across Kenya. One beneficiary, the Lukuma Dairy Commercial Village, increased its average daily milk sales from 186 litres to 600 litres, translating to an increase in income of $4,500 per month for the cooperative.
From our earliest days as a microfinance institution, Equity Bank has grown into a major commercial provider of diversified financial products and services, with nearly 8 million customers in five East African countries. Using innovative financial products and services supported by social impact programs like financial literacy training for youth and women, we have enabled growing numbers of previously unbanked customers—from smallholder farmers to women entrepreneurs—to access the capital needed for a better life and future, driving business expansion at home and helping spark broader economic growth throughout the region.
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James Mwangi is the CEO of Equity Bank.
This article was written for "The New Africa: From Growth to Jobs", a publication by Business Action for Africa in partnership with the Initiative for Global Development. The Report was sponsored by CDC, and was launched at an event in Cape Town on 8 May. The event was convened by Business Action for Africa and the Initiative for Global Development, hosted by Ernst & Young and sponsored by Standard Chartered.