Winner of the 2015 Global Financial Inclusion Award, Kenya Co-op Bank directly and indirectly impacts the lives of 20 million Kenyans, from MPs and high court judges to farmers and rural families. Having gone through a remarkable turnaround in recent years, not only is its CSR ethos impressive but it is also one of the country’s most profitable financial institutions. CEO Dr Gideon Muriuki explains the bank’s effective modus operandi and its promising partnership with the IFC.
Could you please discuss the genesis of the Co-operative Bank and what makes the institution unique?
The Co-operative Bank of Kenya (Co-op Bank) is one of Kenya’s fastest growing banks and one of the five largest financial institutions in the country. The bank has been in business for over four decades, and its history is an interesting one, to say the least. First of all, we are the largest co-operative bank in Africa, supported by the largest co-operative sector in Africa, which is Kenya’s co-operative movement. Kenya alone has 12,000 cooperative societies of which 5,000 are Savings and Credit Cooperatives (Saccos). With over 15 million Kenyans being members of the cooperative movement and assuming every member of has a family of three, it makes the entire population of Kenya connected to the movement. The concept of cooperatives and saving together is so widespread in Kenya that members of parliament, judges of the high court, smallholder farmers, literally every member of Kenyan society is a member of a Sacco. That’s what is unique about us, we are universal bank.
When the bank started in 1965, it was only serving the cooperative sector. We have opened up over time and are now a universal bank offering the entire range of financial services and products—right from cooperative banking to retail, insurance, corporate banking and stock broking services. We have diversified our offering immensely over the last decade, and currently own a 26% stake in one of the largest insurance companies in Kenya, called the CIC Insurance Group.
Other than being part of the co-operative movement, how do you differentiate the Co-op Bank from other financial institutions?
Today 92% of our employees are aged under 40, as we believe that the youth are the ones who will drive change and breathe new life into our institution. We therefore continue to invest in our younger generation.
We have also invested heavily in technology, and as I speak, over 2.7 million customers are riding on our mobile banking platform called MCo-opCash. The way we differentiate ourselves is our eagerness to learn and grow.
2014 was a critical year for us as we brought the global consulting firm McKinsey on board, which has now taken us to a totally new frontier in terms of change. We then kicked-off what we are calling the Soaring Eagle Transformation Project, which is aimed at improving operational efficiencies, managing costs and increasing frontline productivity.
In a nutshell, we have seen gains out of that transformation beyond anything we would have imagined. We knew we were going to do well. We knew we were implementing a major change. We knew we were going through a transformation agenda, but we didn’t expect the very high level of ownership and support from the staff that we have seen.
We are investing in customer delivery platforms to become more responsive in terms of serving our customers. Whereas customers would take up to 45 minutes to be served in our branches, they are now taking five minutes. We have enabled our customer interaction at alternative channels, notably mobile banking and agency banking, and today only 25% of our customer transactions are done at branches.
What is the bank’s model that allowed it to win the 2015 Global Financial Inclusion Award?
The model that we have devised carries everybody with us. It carries the masses with us. It is a model that makes it possible for the wealth that we create as a nation and as a bank to permeate every sector of the economy. It’s a model that carries everybody with us because we’re living at a time when people are creating wealth, but we’re often being accused that we are creating wealth at the expense of the lower pyramid. People need to all rise up together and I think the cooperative model as offering a strong future.
We have also prioritized and built a very big outreach, 150 branches, and in those branches we have 5.9 million customers who have accounts with us. Those 5.9 million includes the 12,000 cooperative societies who in turn have 15 million Kenyans, which means Co-op Bank directly and indirectly is impacting lives of over 20 million Kenyans.
The Co-operative Bank of Kenya has reported an after-tax profit of Sh11.7 billion for the financial year ended December 31, 2015. The profit, which translates into a 46.2% increase compared to the Sh8.01 billion posted for 2014, puts Co-op Bank ahead of its peers in terms of profit growth. Could you please discuss the fundamentals behind the growth?
The bank has had a remarkable growth in 2015, in double digits in comparison to our competitors who registered single-digit growth rates. However, this has not always been the case. The bank has gone through a tremendous turnaround during the past five years.
This bank has had major issues in the past. We were affected by the terrorist bomb blast in 1998. The blast was right next door at the American Embassy. We vacated our head office building for four years, and we had major loses. We reported a huge loss of Sh2.3 billion in 2001, close to a collapse. The board took a radical decision and brought in a new team, and that’s how I came in. The bank decided to boldly embrace change, which has become a core feature of our institution, year on year developing new, innovative ideas and implementing them in order to achieve that necessary change.
With such a rapid growth what are your plans in regard to regional expansion?
With regional expansion, we decided that we needed to come up with a model that carries the local economies with us in the countries that we open new business. We don’t only want to be a successful Kenyan bank in South Sudan, or in Rwanda, or in Ethiopia, but we want to carry the people of those economies with us.
When we opened our business in South Sudan, which was our first regional expansion, we entered into a joint venture with the government of South Sudan. Co-op Bank Kenya owns 51% of the Co-operative Bank of South Sudan. The government of South Sudan owns 49% with a very clear undertaking under the terms of the joint venture that 49% will then be transferred to cooperative societies within a period of four years. That model for us is very critical. Why? We want to empower local communities. We want to empower the local economy. That’s a model that has worked very well in South Sudan. That’s a model we want to roll out in all the other countries that we’re going to in the region.
Co-op Bank recently secured long-term financing facility with the International Finance Corporation (IFC) amounting to $105 million (Sh10.7 billion). The bank will apply proceeds to support lending to small and medium businesses, women entrepreneurs and the housing sector. Could you please discuss the significance of Co-op Bank’s and IFC’s partnership?
We have closely shared attributes between us and the IFC. At Co-op Bank we believe in empowering the millions of people in rural areas, which is a very similar ethos to what IFC stands for. I think that has really resonated well with the IFC in that not only are we there as an institution to create wealth, which we are doing in a very big way for our shareholders, but are also there in terms of empowerment of the common man in the rural areas, providing cheap financing programs, capacity-building with the co-operative societies, and trying to enhance their competitiveness in their handling and investing of money. Those are the key issues that IFC identified and had selected us as their partner, and made available a $160 million financing facility. I see a very unique partnership between us and IFC flourishing in the years to come.
With such a strong message of empowering local economies and local communities, could you please discuss how are you part of the Kenyan community and a part of Kenyan families?
When it comes to CSR, we started with what is close to us: capacity-building in the cooperative movement. The bank introduced a new subsidiary that is wholly mandated to be in the field, in rural areas, working very closely with co-operatives to sharpen their capacities and skills. We have seen the great appreciation that co-operatives have for this program, which has substantially boosted the trust that customers have in us as a bank.
Secondly, we decided to start our intervention in children’s lives early on, for which we are providing school fee scholarships in communities that don’t necessarily have access to finance. Our philosophy is when you invest in education, you invest in the future of a nation. We established the Co-op Bank Foundation in 2007, and we are currently supporting over 4,500 gifted but needy children at both secondary and university education levels. Beneficiaries are selected in equal numbers from all regions of the country.
We are also supporting communities in other ways, such as partnering with local hospitals to make healthcare more widely available and also support to the First Lady’s Beyond Zero Marathon that sponsors child and maternal health efforts in Kenya. We have also closely supported initiatives such as reforestation at Mau forest.
The long and short of this: as a business that had very humble beginnings started by smallholder farmers, we remain steadfast to our founding calling of supporting the interest of the majority.