The Business Interview: Equity Bank’s Anthony Kituuka on how to grow by growing others dreams
Listening to Anthony Kituuka, the managing director of regional lender Equity Bank’s Ugandan unit speak, the line between banker and preacher gets blurred. With the warm glow from the lamp overhead casting a soft hue over his shoulders, Kituuka first explains why he chose the fourth floor for his executive suite, rather than the 360-degree view he could have enjoyed from the 13th floor of Church House, towering over the borderline between downtown and upscale Kampala.
“It is really about some of my customers who would find it difficult going up all those stairs, in case the elevators were out of service,” he says.
The location of Equity Bank’s Ugandan headquarters is also symbolic of the lenders’ hybrid profile – banking the marginal customer, who is struggling to break free of the vicious pull of poverty; and the well-heeled, or blue-chip client with a decades’ old legacy.
During a sit down with 256BN, about the unit’s recent designation as a Domestic Systemically Important Bank D-SIB, by regulator bank of Uganda, Kituuka is philosophical, explaining how the milestone, was the logical outcome of the lender’s efforts over the years, to “transform lives, give dignity to people and increase opportunities for wealth creation.”
“It is really the hard work of the staff, the support of our customers, the guidance of the regulator, the guidance of the board and the guidance of our group that has led us to this position,” he continues with an air of modesty.
“But it all begins with purpose. As an organization we have tried our best to be relevant and to live our purpose, which is to transform lives. We offer integrated financial services or solutions that socially or economically empower customers, businesses and communities. I think in doing that, our impact has made us systemically important,” he explains, falling back into his customer-centric posture.
Equity has been a trailblazer, going down market and getting dirty, to assume risk in places that the industry has until recently, only treated with disdain. Where others saw an amorphous mass of people living on the edge of survival, through its prism, Equity only saw people with aspirations and dreams, that only needed a little push to turn into reality. Maximising the capabilities of digital technology and innovation, the lender has not only made millions bankable but also trusted them with vast amounts of money.
Every single day, the UGX 3.5 trillion bank digitally disburses UGX 10 billion in unsecured loans. The borrowers don’t have to walk to any brick-and-mortar branch to execute these transactions. “These are working capital loans given to small and medium businesses, people who can borrow money on Thursday and pay back on Monday, so that they could buy products from the manufacturers. We believe it was Equity’s life blood, via short term loans that met demand, which kept the economy going during the hard times of last year,” Kituuka says rather casually.
“So, you can see in a month we are doing in excess of UGX300bn and that is working like clockwork 24 hours a day. That requires technology and we believe we are one of the strongest digital banks and this is what makes us a Domestic Systemically Important Bank,” he adds.
It is not unjustified bragging. At more than 8000, the bank has the largest independent network of agents. Almost half of its two million customers, transact digitally. Around 95 percent of Equity’s transactions and value are executed through agents and digital channels, not the 50 branches. Our Equity Dduuka’s are everywhere and we now have 50 brick and mortar branches.
“It is that kind of presence, and numbers that make you systemically important. There are not many banks with that level of footprint, customer numbers and innovation,” Kituuka says for emphasis.
For Equity, growth has been exponential over the four years. From a UGX 1 trillion bank in 2018, Equity Bank Uganda reached UGX 3.5 trillion in assets last year. That propelled the lender to fifth position in Uganda by asset size; third by lending and deposits.
“So, you can imagine how many people are trusting us with their dreams, their aspirations, school fees, retirement funds, their profits and their returns,” Kituuka ponders.
While profit is the selfish goal of any business, Equity believes that profits should come as the dividends from facilitating business and economic growth. So, it chooses the points of its interaction with the economy rather consciously.
“If we want to improve agriculture and actually improve farmers capacity, the next logical step for us, should be to address manufacturing and logistics. After that we have to think of where all this output is going to go. Equity Bank has a presence in Kenya, Uganda, South Sudan the DRC, Rwanda and Tanzania. We are doing trade and investment shows in these markets. We have been as far as Vietnam, trying to ensure that these new products being produced in Uganda have a market.”
The lender drives economic velocity by ensuring that the medium, small and medium enterprises that populate the value chains and the off-takers who buy primary producers’ and manufacturers output, such as the wholesalers and distributors are liquid.
“We must have solutions that empower them to keep getting better and better. Then we want to do this in a socially and environmentally friendly way. If we are banking schools, we want them to use energy efficient solutions. Agriculture must be climate smart.
“Our agenda is to ensure that we can reach more people. We have 50 branches but most of our transactions are not done in the branches, so we need technology because technology creates efficiency. That is why designation as a Domestic Systemically Important Bank, is a great milestone for us. It reaffirms the view of the regulator that of all the banks in Uganda, Equity Bank is very important and should not fail.”
While that comes with hawk-eyed oversight by the regulator and a need to beef up capital reserved by an additional 0.5pc of deposits, Kituuka is not fazed. “There are some responsibilities but heavy is the head that wears the crown and we are very happy to wear this crown.
“That responsibility is something we have been aspiring to because we believe we are ready. We have the systems, we have the people, we have the processes, the guidance and the capital.
Yes, there are certain things we are supposed to do in terms of capital buffers and we shall be subject to stronger regulatory oversight. But we have no problem being regulated because, we have scaled to a higher standard and we shall maintain that higher standard and even go higher so that people can feel safe in this complex environment. We are very sure that if we keep doing what we are doing, we will be able to impact lives, improve people from micro to small, small to medium, medium to large and from large to global. Being a Domestic Systemically Important Bank, gives us the right platform to pursue that vision,” he says.
It shouldering that additional burden, Kituuka is counting on a legacy of tip-top internal standards; asd well as the corporate culture and global outlook of some of Equity’s shareholders such as, the International Finance Corporation and Arise.
“The upside for us is that our D-SIB designation gives people confidence in the economy, it sends the message out there that the banking sector is strong. If people are looking for a safe secure place to keep their money, I propose that Equity Bank is that place. If you look at our growth trajectory, our distribution, reserves, deposits, loans and our asset size, branch network and customer base, we have a solution for every one big or small and we treat everybody with respect irrespective of size.”
Uganda’s and Africa’s bankers have always had a tricky relationship with political imperative and agriculture. As a result, lending to agriculture has been thin and uneven. Recently however, Equity and a few other lenders have become more enthusiastic about banking agriculture.
Kituuka concedes that there has been a 360degree turn in the sector’s perception of agriculture and how to manage its risk profile. “The importance of agriculture to Uganda cannot be overstated. Its contribution to GDP and both formal and informal employment is huge. The challenges to agriculture are many but let me begin with the simplest one. Rain. I went to a conference recently and we were told that there were six problems with rain. It is either too much or too little, too long or too short, too early or too late. Those are the six challenges if your agriculture is rain fed. You have to address those problems or a different combination of those problems.”
In the Ugandan context, the drive is towards facilitating development of smallholder farming. In the past, banks have used manufacturers as proxies for lending the sector, because they were organized and had existing arrangements for funding farmers.
“A manufacturer who is off- taking a product has proper structures. But the true point of impact should be at the farmer level, or the primary point of production,” Kituuka explains the convenience and deficiency of this approach in one breathe.
He adds that while the government had the Agricultural Credit Facility, tried to mitigate the perceived and real risks of lending to agriculture, the disruptions caused by the Covid-19 pandemic, were the eureka moment for the financial sector.
“Covid forced us to look inwards and ask some questions. We realized that an overreliance on imports, was making our economies vulnerable to disruptions in the global supply chains,” he says.
Lenders started to re-evaluate their approach to agriculture and discovered that they could catalyse the sector by enabling players focused on addressing the major pain-points such as pest control, inputs, poor mechanization, fidelity of inputs such as pesticides and fertilizers, and micro-finance.
“What Equity is doing under its Africa Recovery and Resilience Plan, is to look at the comparative advantage of the different countries. If agriculture is the competitive advantage of this region, Uganda can be the food basket for the region, Kenya can be the manufacturing hub and the DRC lead in extractives. South Sudan has the oil and can anchor energy. Everybody should do what they are good at, and we complement each other. Because equity is in all these countries, we can facilitate cross-border trade, the transfer of value and skills,” he tells 256BN.
The logic is easy to see. “Most of the manufacturing in the region is agro-based so, if you address capacity constraints in agriculture, you are addressing very many things in that value chain. Equity bank has set a target that 30perent of our loan-book will be to food and agriculture. Currently we are playing at 13-14percent, but within two to three years, the biggest chunk of our loan-book will be towards agriculture at the farmer level, the manufacturers, the logistics level and the exporter level. We are trying to create hubs, working with various bodies to ensure standards, offtake and value, are maintained at the right level; to ensure people bring in solar pumps, irrigation equipment, tractors and big anchor off-takers to ensure standards.”
Digital banking is the lever that has helped Equity to achieve rapid growth, by bringing more people into the financial loop. But it has not been without challenges. The industry has been in the news for a number of high-profile breaches and customers falling victim to fraudsters. It is a question that has been very close to Equity. Despite the hiccups, Kituuka says there is no turning back because the future is digital.
“We do realize we are operating in a digital economy, and a connected world where everything is driven by technology and digital capabilities. Here our engagements are around three things – onboarding customers, enabling them to transact, or informing them about opportunities. The best way of doing that to scale is going digital. Our *247# USSD code allows you to onboard by yourself instead of going to a branch. Easy-stock allows you to borrow on your own. Easy-loan allows you finance whatever you want to finance up to 10 million shillings without coming to the bank.
“That freedom, convenience and choice, is what digital does -you are not restricted to the working hours of the bank, because things are happening all the time. At Equity we keep saying that a customer isn’t a customer until they are digitized. So, when you open an account, we ask for three things – a national ID for know your customer purposes, an email address and a phone number because that is how we are going to communicate with you, and it is how you are going to escalate and communicate anything about your account security. But because we have closed off loopholes elsewhere in the system, fraudsters have now turned to targeting customer vulnerabilities,” he explains.
At an industry level, Equity and other lenders have banded together with other stakeholders to launch a massive customer awareness campaign.
The aim is to try to educate the public “that if you go digital, you have several responsibilities. One, don’t share your password, two if you lose your device, inform the bank. In the past if you were robbed of physical cash, you reported to the police. If your phone is stolen, you will likely lose mobile money and digital money in the bank so, the first thing you do, should be to report to the bank on 0312327000, so that we can block transactions on that account immediately. We have a team that works 24/7 trying to monitor unusual activity on the account and we security-vet our employees. Equity bank is investing heavily in that, and constantly upgrading its systems, to close any vulnerabilities and we are working with partners such as the police, the telecom companies and UCC to apprehend these fraudsters who target our customers. Security is doing certain things; the banks are doing certain things and third-party providers are doing certain things, to ensure customers have the same level of comfort that their money is safe in the bank. Eventually we will root this out.”
According to Kituuka, while the industry has lost several billions of UGX to cyber fraud, it accounts for less than 1pc of the money that banks lose in one way or another. “I can tell you though, that in every bank, in every telecom, beyond credit risk and security risk, the highest risk we’re looking at now, is cybersecurity. If I give you a loan of 10million shillings and you default, my loss is limited to 10 million. And because it is secured, I may not lose all of it. With cyber fraud, someone can come into your bank and wipe out all your deposits or reserves in a. That is an existential threat because the fraudster could be anywhere on the globe. So, banks, telecoms and governments are continuously tightening to narrow the opportunity for cyber fraud.
“ And because there is no bank in Uganda with a digital footprint to match Equity’s, it is only natural that we shall be more targeted. But the problem is industrywide. Most of the time the successful attempts originate from the customer side, because the system identifies the customer by the PIN and we would not know that it is a fraudster transacting if the PIN has been compromised, and we were not informed. As a DSIB, we will not abandon digital because it is the future and we will continue investing in our digital capabilities. Yes, we get attacked but we will not relent, from our end we shall make sure the systems are safe and solid.
If there is a word to describe the past three years for the economy and banking in general, ‘dreadful’ is what easily comes off the tongues of most commentators. Kituuka is in agreement with the general consensus, but now, he sees light at the end of the tunnel.
“I can’t speak for the other banks but generally, 2022 was again a difficult year for the banking industry. As businesses were coming out of covid, we had the Russia-Ukraine situation. Then we had Ebola, which definitely had an impact. Schools and small businesses which were trying to recover were impacted. Because of that, and the end of covid relief measures by the central bank, the banks had to adopt a prudent stance about the prospects of some of these businesses coming back. You had to make a call on whether a business was still going to come back after several restructurings, or make some hard decisions in order to cut your losses. So, you might see certain prudence in income recognition and the outlook on certain assets, the loans you have given, and it will affect performance in certain areas. However, it is matter of choice, you either take the pain now or take the pain later. Different banks will treat it different ways.
“However, for 2023, it is still a complex, volatile, uncertain and ambiguous environment. Where we are sitting as Equity, we are going to combat volatility with vision, uncertainty with understanding, complexity, with clarity and a focus on the opportunities.
We are engaging our customer and sensitising them about the risks of digital fraud. We are telling them don’t borrow more; actually, if you have too many assets, dispose of some, which are not earning for you. And people are moving in that direction. Overall, though, I am buoyant about future prospects and, I do believe we will grow market share this year.”