It's dawn, and Philip Ndungu has already been to market. It's only the start of what will be a long day. Every morning Phillip prepares hard-boiled eggs, salsa and fried sausages. It's his micro-business - taking and selling a hot breakfast to his entire neighbourhood.
PHILLIP NDUNGU (Translation): Often I start my day at 6am. I sell to about 700 people a day before I go to school.
Phillip's patch is the suburb of Kawangware, one of the poorest in Nairobi. His small business has earned him respect in what can be a tough place. Paul Gando is one of his loyal customers.
PAUL GANDO (Translation): What do you have? Let me see.
PHILLIP NDUNGU (Translation): I have things for 15 shillings, some for ten… and sausages.
PAUL GANDO (Translation): You have smokies, I think this is a very good idea because many boys like that guy would not do such a job. They are scared the girls would look down on them or things like that. But I am impressed by that guy because he is really committed to the job he does instead of getting involved in drugs.
A year ago, Phillip had dropped out of school - he had no money to pay the fees and no way to get a loan.
PHILLIP NDUNGU (Translation): Yes, I had a problem paying my school fees because my job was bringing in less and less money.
Then a micro-lender called Equity Bank opened up in his neighbourhood.
PHILLIP NDUNGU (Translation): I went and spoke to the bank and they were able to help me out with money for my fees.
Phillip was granted a $100 loan to start his business. That was enough for Phillip to nurture his microenterprise, take on an assistant and return to finish his last year of school - paying his own way.
PHILLIP NDUNGU (Translation): My life is going well because I’m not having to argue with anyone about taking time off to go to school. Things are going well because I am self – reliant.
Micro-loans, sometimes for as little as $10, are Equity Bank's mainstay. Today, Dr James Mwangi, the bank's founder and CEO, is opening a new branch in a rural, low-income area that all the major banks have avoided.
DR JAMES MWANGI, EQUITY BANK CEO: We are happy to declare this branch of Equity Bank officially open.
Equity's business is booming, while the major international banks are being battered. Mwangi has a very clear view of what created the current financial crisis.
DR JAMES MWANGI: That was driven by greed as opposed to a need to serve. So it was not the basic tenets of banking, it was more about satisfying human greed.
Bringing Kenya's poorest entrepreneurs, people like Phillip, out from the underground economy and into the mainstream has been the secret of Equity's micro-banking success.
DR JAMES MWANGI: Equity has developed a model that has incorporated them, made banking inclusive. And also done very well in terms of performance. For the last 10 years, Equity has posted growth of 100%, year in and year out. Last year, despite the financial turmoil, Equity was still able to register 110% growth in profitability.
Equity's success has also been due to its efforts to bring women into Kenya's banking culture. Monica Weaver was working as an underpaid seamstress when an Equity employee came by to talk.
MONICA WEAVER: They were just marketing Equity, telling us how it can empower women. I got a chance to be one of the women who were empowered by the Equity Bank.
Monica opened her own account with Equity, and started saving for her own business. The bank charges nothing to open an account and encourages its clients to deposit as little as AU$1.
MONICA WEAVER: Even to open an account with another bank other than Equity was difficult
REPORTER: You tried?
MONICA WEAVER: I tried but it was difficult for me. Because maybe I had 2 shillings with me or 100 and to take them to that big bank, it was a shame. But with Equity, even if I only have 50, I’m very comfortable to go and save my 50 shillings.
Monica had very little to use as collateral but Equity accepted her small table and television as security. James Mwangi says the bank accepts all kinds of interesting items as loan guarantees.
DR JAMES MWANGI: I think that a common but strange collateral is the matrimonial bed. We see with married women just a commitment that they will sign off their matrimonial bed. If you look at the level, the volume, in terms of the size of the loans, you can’t go beyond what they have, that is the assets that they have, and that is what they value most.
Till now, the majority of micro-businesses in Kenya have stayed out of the banking system, using cash instead. For years, the major banks believed that these people were not to be trusted to repay even small loans. James Mwangi has proved that the truth is exactly the opposite - the most poor are, in fact, the most reliable. The default rate on Equity's micro-loans are the lowest in the banking industry - less than 6%. David Mataen is an investment adviser and he's been following Equity Bank's micro-finance initiatives.
DAVID MATAEN, INVESTMENT ADVISOR: If you get to look at the books of those that have micro-lendings, their rates of delinquencies is so minimal, is so unbelievable, and that's because of the financial and fiscal responsibility of the individuals who are running these organisations. Some of them have nothing else to turn to, that is the be-all and end-all of their economic wellbeing, they depend on it. They are so emotionally invested in it that they could not let it die.
Lilian Macharia built this small hotel and pub with Equity money but a large part of it burned down recently. Never having been able to afford insurance, Lilian went back to the bank, and without even additional collateral, they gave her a second loan to help rebuild.
LILLIAN MACHARIA (Translation): I have noticed that Equity Bank, help people who can’t help themselves. You just have to make an effort to pay them back. When you pay it back they will give you another loan…I’ve seen how Equity Bank has helped me and I thank God because, if not for them, someone like me would not be able to do anything else.
Mwangi says that this isn't charity, it's good business. He claims that clients like Lilian are the safest bet in banking.
DR JAMES MWANGI: They are very responsible people who have been responsible for their lives. It is only that they have never been understood. They have been measured through others’ lenses and standards. That’s why they fall short. It is a very parochial perception that is upheld. But if you have to do a lot of groundwork on those types of people, you realise they are very reliable, trustworthy and committed.
James Mwangi still criss-crosses all of Kenya, pushing his Equity Bank into remote areas. When he arrives in the rural town of Thala, he's greeted by a crowd of thousands.
DR JAMES MWANGI: This bank is a product of the sweat of the Kenyan people, owned by Kenyans, managed by Kenyans and committed through financial services to transform the lives of our people.
Equity has shown that, without a doubt, the farmers, the weavers, and the hawkers in this rural crowd have something to teach the bigger players.
REPORTER: What do you think that a small businessman in Kenya has to teach a Wall Street banker?
DAVID MATAEN: If nothing else, honesty.
PHILLIP NDUNGU (Translation): In the next five years I would like to continue doing business and hopefully to study business. Study business so that my business can grow so that I can help the rest of my family.
GEORGE NEGUS: Wonderful stuff, but offering the matrimonial bed as collateral, does that include the person in it? Just wondering. Aaron Lewis reporting from Nairobi. And if you thought those Grameen Bank-type micro-loans are just small business, think again. One market analyst told Aaron that micro-credit businesses had the potential to add 2% to Kenya's GDP. In the current climate - definitely not to be sniffed at.
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very very tight post. i enjoyed this. i came her from a Google reference looking for something on Dr. James Mwangi and i am glad your blog came through when it did.
How did Dr. Mwangi start Equity? Where has he worked? What is his family background? What is driving him? What is distracting him? What should one expect from him after Equity?
He was the chief accountant of Trade Bank Ltd, liquidated almost 18 years ago. Trade Bank was a good bank but was plundered by both politicians and top ranking bank officials like Mwangi. Some initiatives taken by Equity Bank are a replica of what Trade Bank had.
The foregoing notwithstanding, the development agenda for all customers that Equity has is commendable.
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