Kenya boasts one of the fastest-growing banking sectors across Africa, but this has not always been the case. Beginning most notably half a century ago, the industry’s rise has been shaped by a willingness to inspire change, in particular among the country’s cooperative movement that has succeeded in transforming the national economy.
With large parts of the country’s population still struggling to make ends meet, poverty still ranks high up on the list of concerns of Kenya’s 43 million-plus inhabitants. The country’s cooperative movement, nonetheless, has emerged as a decisive instrument in alleviating poverty and a proven means of boosting the livelihoods of those worst affected.
Established a short while after Kenya secured independence in 1963, the Co-operative Bank of Kenya (Co-op Bank) was founded by Kenyan cooperative societies and unions well versed in the difficulties of accessing credit on home soil. Whereas banks were then all too eager to accept deposits, they were unwilling to advance those same customers credit, without the guarantee of securities, financial statements, credit histories, or various other formal requirements. However, the formation of the Co-op Bank would go on to enable previously underserved areas of the Kenyan economy and pave the way for sustainable prosperity.
Far more than a member of Kenya’s banking community, Co-op Bank stands as a major constituent of the national economy and a major force for positive change. Francis Ngambi, the bank’s Press Secretary and PA to the Group CEO, tells World Finance about the country’s development and the ways in which the firm, together with the wider cooperative movement in Kenya, has sparked economic growth.
40,000
New accounts per month
Ambitious beginnings
“Cooperatives were fast emerging as key mobilisers of resources that enabled farmers, mostly in coffee, cotton, dairy and pyrethrum, to jointly market their produce. They needed crucial support by way of affordable credit,” says Ngambi, referencing the challenges facing Kenya at the time of Co-op Bank’s establishment. “This difficulty in accessing affordable financial services drove cooperatives to seek an alternative path, culminating in the establishment of their own bank to serve their own interests.”
Registered as a cooperative society on June 19 1965, the Co-op Bank did not officially open its doors until January 1968. It then managed to close out its first full year in profit, marking the first of many successes over the years to come. The bank has since become a full-service universal bank, offering a range of services spanning retail banking, corporate and trade finance, foreign exchange, mobile and internet services, stock brokerage, fund management, asset finance, mortgage, bancassurance, and custodial and registrar services – all in addition to banking cooperatives.
From its beginnings as a humble cooperative, the Co-op Bank today represents the number one point of contact for Kenya’s 10 million-member strong cooperative movement, who control a majority 65 percent stake in the bank. With an asset base of close to KES250bn (see Fig. 1) and 4.3 million account holders, the Co-op Bank in many ways represents the changing face of Kenya and stands today as one of the largest and fastest growing banks in east Africa.
A model for inclusive growth
“If there is one unique feature that distinguishes Co-op Bank from peers, it is the activist nature of its business strategy,” says Ngambi. “The Bank regularly intervenes in selected sectors of the economy with a view to achieving transformation in challenged sectors, notably in agriculture, for the benefit of the majority who depend on it for a livelihood.”
In contrast to the dealings of its more conventional banking counterparts, which largely keep their clients at an arms length, Co-op Bank chooses instead to intervene directly in the lives of its customers by way of making targeted investments; a method that has so far achieved largely positive results. This strategy means that the bank is better equipped to tackle the issues worst afflicting those living in the country, whether they be social, economic or even political, and make a measurable difference to the economy as a whole.
In 2003 Co-op Bank established a wholly owned consultancy company, Co-op Consultancy Services, in order to provide capacity building support to Kenyan cooperatives and at a heavily subsidised rate. As a result of the bank’s efforts in this particular field, cooperatives the country over have for the last 10 years been allowed swift access to world-class consultancy services in the fields of training and capacity building, HR sourcing, ICT systems, audits and procurement, strategic planning, restructuring and turnaround strategies, among others. Fast-forward to the present day and the Co-op Consultancy runs hundreds of consulting mandates every year, which, in itself, goes some way to explain why Kenyan cooperatives rank as the largest and most successful of their kind on the continent.
Another of Co-op Bank’s notable interventions came in the form of support for the coffee-marketing agent Kenya Co-operative Coffee Exporters (KCCE), which was founded in order to protect the interests of small-holder coffee farmers. Prior to the arrival of the KCCE, coffee was largely considered to be something of an unworthy venture, particularly for small-scale farmers. However, with the creation of KCCE, both coffee dealers and exporters alike are today paying far higher prices for coffee, in turn improving the livelihoods of those in the business.
The bank is also a sizeable shareholder in Co-operative Insurance Company (CIC) by way of an enhanced equity investment of 26.5 percent, making the Co-op Bank a key strategic shareholder in the firm. “On its part, CIC has rolled out innovative insurance to cover agricultural risks, including micro insurance for small-holders,” says Ngambi. “This has enabled Co-op Bank to extend credit to a wider pool of farmers who would otherwise have difficulty getting loans.”
In addition to the bank’s stake in CIC, Co-op Bank has invested a substantial sum in the stockbroking company Kingdom Securities, in order to deliver greater safety and reliability for investors, notably those in the cooperative movement. Clearly not content with financial success alone, the bank’s vision is to build a strong countrywide presence and a play a central role in the wider cooperative movement in Kenya.
Commitments and endeavours
“To enhance the deepening of financial access for the majority, the bank continues to invest in a service network to cover all counties in Kenya,” says Ngambi. “[The network is] complemented by mobile and internet banking, not to mention the over 7,000 bank agents spread countrywide.”
In keeping with this same commitment, the bank has so far supported the establishment of over 550 front-office outlets of savings and credit cooperatives, enabling the country’s over two million cooperative members access to financial services without their having to formally open a bank account. The growing number of ATMs and branches are also testament to this (see Fig. 2).
“Co-op Bank’s robust service channels have achieved a deep reach, enabling the bank to boost customer accounts from 695,000 in 2008 to 4.3 million today,” says Ngambi. “At the current growth of 40,000 new customer accounts per month, Co-op Bank is realising financial deepening, not just for the bank but also for the nation.”
Not exclusive to Kenya, the bank’s methods are just as easily applicable to similarly underserved communities throughout Africa and much of the developing world as a whole. The bank’s plans are to soon extend its coverage beyond Kenyan borders and bring its successful cooperative model to additional markets in Africa.
In September 2013 the Co-op Bank opened its first branch in Juba, the South Sudan capital, and hopes to do the same again in neighbouring nations in the months and years ahead. The bank’s South Sudanese subsidiary is a joint venture between the Co-op Bank and the South Sudan Co-operative movement on a 51 percent to 49 percent shareholding basis. Much like the bank’s efforts in Kenya, this joint venture facilitates far deeper engagement with the market and a more sustainable positioning of the business.
As a natural extension of the bank’s business, Co-op Bank also boasts a robust corporate social responsibility programme. The Co-operative Bank Foundation is the bank’s flagship vehicle for social change and today focuses principally on matters of education by supporting a scholarship scheme for bright children facing difficulties in paying for school fees. The programme is currently financing some 1,400 students in both schools and universities, and is set to grow by an additional 2,800 students over the next four years.
Opting to reward the whole rather than the few, the Co-op Bank has thrived ahead of its many regional competitors. Recognising its responsibility to those in the cooperative community, the bank looks on track to post increasingly impressive results in the years to come and make a measurable contribution to the social and economic development of Kenya as a whole.
