The Equity Bank
Interview with James Mwangi – Group Managing Director and Group CEO of the Equity Group Holdings Limited, the banking conglomerate with the largest customer base in Africa and the largest African majority owned company in the region. James Mwangi won the 2012 Ernst & Young World Entrepreneur of the Year, the first business leader from Sub Saharan Africa to win this prestigious award.
by Dave Ramaswamy
Dave: How is Equity Bank helping farmers with credit?
James: Supporting farmers goes beyond credit. The biggest need for farmers is building capacity so they are able to, and can, learn to use credit appropriately. The second significant opportunity to support farmers is to build linkages. It is not just about production, it is linking farmers with the market, linking them with post-harvest produce managers. For Equity Bank our goal is to ensure farmers are fully funded. Over the last 6 years we have been able to support through credit, 460,000 peasant farmers to progress from subsistence farming and graduate to being agribusinesses. We give them financial training so that they see agriculture as a business – for sustainability and scalability. We have introduced warehousing in Kenya so farmers are not forced to sell all their production at the time of harvest. They can go to a produce manager, get a Warehouse Receipt. Farmers can discount that, and can get a credit against that Warehouse Receipt.
In a partnership with the Alliance for a Green Revolution in Africa (AGRA) and the Kenyan government, we are helping farmers adopt modern agriculture practices, including appropriate use of fertilizers and certified seeds. In some cases, we have helped farmers increase their yields up to 12 times.
Dave: What are the key areas for improving agricultural efficiency?
James: If Agriculture in Africa needs to move to the next level, there must be significant enhancement in 1) productivity 2) quality and 3) value addition. This is our greatest opportunity. We can do this with technology, either through software or hardware. And we must ensure that increases in the above 3 elements – productivity, quality and value addition can be obtained through optimal use of additional inputs.
Dave: What are your key messages to investors? In Kenya? East Africa?
James: Kenya and East Africa is an agricultural region. So, the raw material is plentiful. If they want to have impact, agriculture is the sector to invest in because you can positively affect the lives of 85% of the population. The agriculture sector in East Africa is still at the primary production level. And it is crying out for enhancement to the value addition level. Agro processing is a huge, huge opportunity. And the market is ready and waiting in East Africa.
Dave: Africa is food insecure because it is energy insecure. In many areas, 10% to 30% of crop output is wasted because the output cannot be stored under controlled temperature/humidity conditions, or processed quickly enough. How can the U.S. backed Power Africa energy investments help transform the agriculture sector?
James: The modern world is driven by and rotates on the strength of energy. For African agriculture to transform we need significant energy. We need to mechanize agriculture. Mechanization provides an opportunity for energy utilization. Agro processing will be a huge consumer of energy. For instance, transporting produce efficiently, requires electrified railways. The core of development, the enabler and facilitator of any agricultural transformation is availability of energy. When farmers milk their cows in the evening, and if they cannot finish and have to deliver it the next day, the milk needs to be stored and chilled overnight in coolers. Coolers will only work if a farmer has access to energy. So, you can see the correlation. For example, if you want to properly implement a “zero grazing” dairy system, you need to automate the feeding process and the milking process within the dairy farm. Both of which require access to a reliable source of energy. So, essentially food security and energy security go together.
Dave: Kenya and East Africa needs billions of dollars to upgrade and build new infrastructure for agriculture transformation. Infrastructure investments are long-term plays with delayed payback periods, e.g. 30 to 40 years for roads, railways etc. So, you need to mop up pension fund capital, family office capital with long investment horizons. How do you see Equity Bank partnering with foreign entities to tap into these capital pools?
James: In East Africa, we need to push more to deepen and widen our capital markets. You’re spot on – what we need for infrastructure is long-term funding and long-term capital. The capital markets are best-positioned for this. Banks can serve a facilitation role to ensure that capital flows for the long-term, particularly to the consumers of that capital. To identify and vet the recipients of that capital – that is where Equity Bank can play a significant role. We are playing a role of being a bridge between long-term funders, whether it is the development finance institutions or pension funds, and the borrower. So, far we have received a $1 billion dollars for onward lending for a term of 7 to 15 years. So, that is the bridge role we are playing.
Dave: James, thanks a lot for your time. Wish you continued success!
James: You’re most welcome.