Editor’s note: This is a guest post from Mamading Ceesay.
This week, I'm in Nairobi, Kenya to attend the Africa-Middle East Regional Microcredit Summit aka AMFI on behalf of London Creative Labs. Before the Summit proper begins, attendees had the opportunity to go on field visits with local Microfinance Institutions (MFIs). I chose to go on a field visit organized by Equity Bank.
We were first taken to Equity's corporate headquarters on the outskirts of Nairobi. There we were briefed by Dr. James Mwangi MBS, its Chief Executive Officer & Managing Director. He is an inspirational, passionate and transformational leader who clearly lives and breathes the Equity Bank vision. No wonder, the Financial Times named him one of the top 50 emerging market business leaders who have shaped the economic performance of their respective regions.
“To be the champion of the socio-economic prosperity of the people of Africa.”
— Equity Bank Vision Statement
About Equity Bank
“The most exciting aspect of Equity's journey- from a humble, floundering, but deeply ambitious building society to an African Success story- is its partnership with the "bottom of the pyramid".”
— From the Equity Bank Annual Report & Financial Statements 2009
The Equity Bank story started 25 years ago as an indigenously owned Kenyan building society. In 1994, it made a defining mission shift from mortgage financing to microfinance after nearly being liquidated by the Central Bank of Kenya in 1992. As a building society, Equity had struggled with the constraints imposed on it under the Building Societies Act, which didn't fit with the business activities it was actually undertaking.
The shift to microfinance happened in the year that James Mwangi joined the Board and management team as Executive Finance Director and assumed leadership of operational management. Mwangi's leadership has proved to be pivotal in the transformation of Equity.
Mwangi redefined the vision and mission of Equity and evangelized it through the organisation. He pushed the provision of training to build technical skills and boost confidence for achieving the vision. He delegated responsibility, created incremental challenges, rewarded performance, flattened the organisational structure and changed the corporate culture. In 2004, Mwangi became CEO and Equity formally converted from a building society to a commercial bank. Equity listed on the Nairobi Stock Exchange in August 2006.
Equity has 52% of all deposit savings accounts in Kenya. It is the most capitalised bank in East and Central Africa. There are 3-5,000 new accounts opened with Equity per day. 78 per cent of Equity account holders were previously unbanked. Equity has the best bank branch network in Kenya and half of the ATMs in the country. It handles 82% of all bank transactions in Kenya. Since Mwangi's ascent to CEO, Equity's growth already strong has become spectacular, aided in part by a strong IT platform which isn't fragmented by branches as is the case in many more established banks. Besides Kenya, Equity is a player in Uganda, having acquired Uganda Microfinance Limited the leading microfinance institution in that country and has a presence in Rwanda and Sudan.
Equity predominantly hires graduates straight from university. It "hires for attitude and trains for skills". In particular, one attitude that is closely examined at the interview stage, is the prospective recruit's attitude to service. If someone doesn't have the prerequisite dedication to customer service, they will be a poor fit for Equity. Equity's single biggest expense is staff training and development. The benefit of hiring recent graduates is that they can be more easily be taught the Equity way of doing things.
“There's only one way, the Equity way!”
— Dr James Mwangi, CEO & MD, Equity Bank
About Equity Bank's customers
“We offer inclusive, customer-focused financial services that socially and economically empower our clients and other stakeholders.”
— Equity Bank Mission Statement
Equity offers financial services for individuals, small and micro businesses with a particular emphasis on those who have low incomes and/or don't have a bank account. Kenya has a population of 40 million, of whom only 7 million have bank accounts. The other 33 million are keeping what little savings they have under the mattress.
“Equity Bank has to be more competitive than the mattress!”
— Dr James Mwangi, CEO & MD, Equity Bank
60% of Kenya's population is under 30 and there is a 40% unemployment rate. As a result, Equity does a lot of work with youth. It also has a strong focus on the informal sector which accounts for 94% of Kenya's GDP. Peasant farming is most of the economy, so Equity works to evolve peasant farming to commercial small-scale farming.
Equity emphasises the creation and maintenance of stable, end to end value chains to ensure income for their farming customers and microloan repayments. In order to achieve this, Equity develops and maintains strong expertise in the agricultural sector, so that it can properly advise and support its customers in that sector.
For those working in the agricultural sector, Equity offers a range of Kilimo credit facilities tailored for the needs of small-scale farmers, large-scale farmers and agri-businesses. Agri-businesses such as agro-dealers, importers, agro-processors and inputs manufacturers are critical parts of the value chain that allow farmers to bring their produce to market.
Equity has a huge emphasis on empowering women, offering a range of fanikisha (swahili for "it can be done") loans for individual women and women's groups as well as providing the necessary support and assistance to not just ensure loan repayments but that the lives of the women and their families, children especially improves. Women in Kenya have to deal with not just the poverty trap but also what was termed the culture trap. In Kenya, it's been traditionally the case that women could not own land and any inherited wealth was not passed down to women. Through the provision of fanikisha loans and group-oriented practices, Equity has been able to make a considerable impact on the lives of the women it serves.
Mwangi and Equity are running into the same sort of resistance to their work in empowering women that Yunus and Grameen have encountered in doing the same. I'm reminded of what Yunus said on being told that empowering women is against Bangladeshi culture. His robust response was "you can keep your culture, I'm creating a counter culture!".
In Kenya, the resistance to fanikisha is such, that a Men Against Empowering Women group has not only formed but is actually taking legal action against Equity to try to stop its programmes of empowering women. Mwangi was quite emphatic about wanting to win the court case, so that Equity can continue to empower women unimpeded.
That's all folks... for now
I'd like to write about the actual field visit and post my photos from it, but this blog post is already quite long and it's late enough that I should leave it for another day, perhaps even tomorrow!
Editor’s note: This is a post written by Mamading Ceesay.
Introducing Samuel Bowles
Samuel Bowles is probably the most important economist you've never heard of and it wouldn't surprise me if he won the Nobel Prize at some point. Given that he's a key influence on last year's winner Elinor Ostrom and that his intellectual antithesis the market fundamentalist Chicago School of Economics "is on the ropes" as he puts it, that's not beyond the realm of possibility.
Bowles has spent four decades studying economic inequality ever since Dr Martin Luther King asked Bowles and his then colleague at Harvard, Herbert Gintis to write background papers for the 1968 Poor People's March. His studies have given him unique insights into inequality, job creation and social cohesion, so it is of great interest to London Creative Labs.
Bowles' work is cited a number of times in Eric D. Beinhocker's 2006 book The Origin of Wealth. In the Santa Fe Reporter article Born Poor?, Bowles is interviewed and some of his work regarding inequality is discussed.
Bowles on Economic Inequality and Guard Labor
One key claim of Bowles is that the higher the level of inequality present in an economy, the more inefficient it is and the less income it produces. There are a number of reasons that this is the case. One reason is that in highly unequal societies, the highest ranking members of society have to expend more time, energy and resources making sure those below them behave by amongst other things the employment of what Bowles and his colleague Arjun Jayadev call guard labor. Think supervisors, traffic wardens, police officers and prison guards, which by the way aren't the best paying jobs around anyway.
Those employed in guard labor aren't creating economic value since they aren't producing goods and services or running businesses that produce goods and services. This is a significant opportunity cost in the economy of an unequal society. That opportunity cost is multiplied by the fact that an excess of guard labor also sustains illegitimate inequalities. This means those who are on the wrong ends of those inequalities never get the chance to fully participate in the economy and contribute to society to the degree they are potentially capable of. Bowles has found that there is a direct positive correlation between the amount of inequality in a society and the amount of guard labor it requires.
Bowles and his colleagues have found the single most important determinant of economic success in America is "one's choice of parents". IQ and education are much less important in determining one's economic success despite all the rhetoric saying otherwise. The implications of this for economic policy, social mobility and social justice are stark. One of the most disturbing being poverty persisting through generations of a family despite individual members' efforts to improve themselves.
How to Create Jobs the Samuel Bowles way
According to Bowles, most state-sponsored initiatives for jobs creation perform poorly precisely because they are designed as tax incentives for corporations to employ workers. Instead, he proposes giving everyone no matter who they are a very substantial one-off grant which they could then spend as they see fit, to further their education or start a business, or anything else that makes sense to them.
Community Action New Mexico has run a program for years that approximates Bowles' proposal to some degree. It has helped 800 New Mexicans set up Individual Development Accounts (IDAs). After completing a course on money management, the IDA holders have their savings matched by a multiple of 4 to 1, enabling them to buy a home, pay higher education fees or start a business. The IDAs have led to 93 new businesses, 67 home purchases and 110 people in higher education. New Mexico state's contribution is $2,500 per IDA. Given the number of jobs created by homegrown, IDA-supported businesses', this approach is about $10,000 cheaper per job than New Mexico's corporate subsidies.
IDAs fall short of Bowles' vision, because for example not everyone qualifies; it's not an outright grant, but a matched fund. What if someone starts a business that fails, buys a house that loses much of its value or studies what turns out to be a vanishing trade? This is where a radically reformed social security safety net can come in, as a form of social insurance that kicks in when one suffers misfortune through no fault of one's own.
What Bowles is essentially saying is that sharing the wealth causes an increase in the amount of wealth in the economy, due to more economic activity and job creation. This creates a larger and more robust tax base and reduces the benefits bill. Surely policymakers should be not just investigating but piloting projects based on Bowles' ideas.
Letting the Gini out of the Income Inequality bottle
The Gini coefficient is a measure of statistical dispersion often used by economists as a measure of inequality of income or wealth. The most recent US Gini income index is 46.4 which puts it on a par with the Philippines a country where every other person lives on less than $2 a day and Rwanda an even poorer country still recovering from the genocide 16 years ago. 46.4 is a great increase over the US Gini income index of 38.8 in 1968 and is quite frankly shameful for one of the wealthiest and most powerful societies in the world. The US has become even more of a "Winner takes all" society since Martin Luther King's day not less.
New Mexico has a Gini income index of 45.7 which is bad enough, compare that to the District of Columbia which has a truly appalling Gini income index of 53.7 that a third world nation would be ashamed of. Utah in contrast has a 41.3 Gini income index.
According to the Institute for Fiscal Studies report on Poverty and inequality in the UK: 2009, the UK's most recent Gini income index is 36, the highest level of inequality since the comparable time series began in 1961. In comparison, Sweden has a UN Gini index of 25, Germany 28.3 and in France the figure is 32.7. Not only is this a poor performance in comparison with its European peers, countries like Indonesia, Vietnam, Laos, Algeria and Tanzania perform better than the UK on Gini income indices. Furthermore, 36 is clearly a massive increase in income inequality since the pre-Thatcher Gini income index of 25. This long-run increase in income inequality almost inevitably indicates a long-run increase in poverty in the UK.
The GLA Economics Unit published a report in 2008 on Patterns of low pay in London where it presents Gini income indices for all employees in London and Outside London covering the years 2002-2005. London in 2005 had a Gini index of 32.4 and Outside London had a Gini index of 31. Given the most recent UK Gini index of 36, those figures would clearly be worse now. It's worth noting that the given figures by definition exclude those whose sole form of income is benefits and those who are neither in receipt of salary or benefits. In other words, the most poorly off aren't included.
The Gini income index is far from being the end-all and be-all of income inequality metrics. Its value lies partly in being frequently used and easy to present to laypeople, it is used for instance by the UN in its' Human Development Reports. For those of a more statistical bent, Entropy, Redundancy and Inequality Measures looks like an interesting resource. It features a Python library that contains formulas from Amartya Sen's book On Economic Inequality.
Other resources on Economic Inequality
It looks like the EQUALSOC academic network is doing potentially relevant and useful work in the area of economic inequality, the Oxford Handbook of Economic Inequality is a recent publication based on their work.
 Bowles, S., Gintis, H., and Osborne Groves, M., eds. 2005. Unequal Chances: Family Background and Economic Success. Princeton, NJ: Princeton University Press
16 March 2010
Sofia Bustamante, the Founder of the South London-based London Creative Labs has been recognized for her pioneering and innovative approach to tackling worklessness and poverty by being named as a "London Leader for 2010" by the London Sustainable Development Commission.
“This is a problem that is 50 years in the making. But it's totally unacceptable that we've allowed this to happen, that London should be both the richest and the poorest city in Europe.
“Everyone agrees the best way out of poverty is a decent job. But to get them to that position, they need training, confidence building and support.”— Sir Trevor Chinn, Chair of The Mayor's Fund for London
The above is Sir Trevor's response (published on 5 March 2010) to the issues highlighted by the London Evening Standard's Special Report: The Dispossessed on the persistence of near-Dickensian levels of poverty and deprivation in London, one of the wealthiest and influential cities in the world.
“I founded London Creative Labs to tackle poverty in the capital in a deeper, more systemic way than the conventional approaches to social ills. I'm honored to have been named a London Leader.
“I look forward to collaborating with my fellow London Leaders, the London Sustainable Development Commission and others in helping the Dispossessed rise out of poverty and contribute as fully participating members of society.
“I'd like to thank everyone who has contributed to the London Creative Labs Peer Fund so far and everyone else who has helped London Creative Labs get to its current stage of development.”— Sofia Bustamante, Founder of London Creative Labs
London Creative Labs has a unique approach to dealing with these issues that is distinct from that taken by agencies and local authorities:
- Gain a deep systemic understanding of the underlying obstacles preventing people being able to obtain decent work.
- Engage with organisations, networks and individuals to create highly effective solutions for overcoming those obstacles.
- Ensure that the Dispossessed are at the heart of the design and implementation of those solutions & that they receive the Deep Support they need.
- Facilitate the creation of new jobs and other opportunities for work via a highly entrepreneurial methodology.
Notes to editors:
The last quarter has been all about figuring out how to scale up our operations to be led by a community. To do this in a way that aligns with our values has been the challenge and as we move into March, we think we are in a great position to make that transition.
- Initiated the first Skills Camp!
- Engaged with Spacemakers in the effort to support this initiative in Brixton Village Market. Set up temporary home in the Transition Towns Community Shop to run our Skills Camps.
- Discovered that Sofia had been appointed as one of 15 London Leaders, following her nomination!
- Met Danone Communities, a deep community builder in Paris around the theme of Social Business.
- Found a wonderful new home for London Creative Labs, with an aligned community in Vauxhall.
- Ran the first UK-based training of Evolution Lounge: urban guerilla coaching meets peer-mentoring. It was a great success and we plan to do more!
- Facilitated the Economics Stream at Ecotopia.
- Spoke at the Institute of Chartered Accountants about redefining jobs and employment.
- Began a project to produce a brochure on Social Business typologies.
- Re-framed LCL 3.0 as addressing three themes: Job Creation, Business Model Innovation, and Distributed Process Literacy (skills of participation).
- Prepared the ground for LCL to move to transition to a community-led venture to deliver on LCL 3.0.