EQUITY BANK: ATTACKS ARE UNJUSTIFIABLE

ATTACKS ON EQUITY BANK ARE UNJUSTIFIABLE

It is trite law that an investigating officer may only arrest a suspect or commence an investigation on the basis of reasonable suspicion. This procedural safeguard is aimed at discouraging frivolous and vexatious accusations or anonymous complaints, which may be injurious to another person. Mr. S. K. Patel, who complained against Equity Bank, has not stated the capacity in which he is complaining. He has not demonstrated any breach of the law or fiduciary obligation by Mr. James Mwangi the CEO of the bank or it’s Board of Directors. As a depositor, he is required to cite a specific breach relating to lending, shareholding or dealings with customer deposits contrary to the provisions of the Banking Act. Alternatively, he could cite non-compliance with the disclosure requirements set by the Prudential Guidelines under the Central Bank of Kenya Act. As a shareholder, he needs to show fraud or breach of a fiduciary obligation owed to him and other shareholders by the Board or a specific director. A complaint against management should relate to a specific contravention of the bank’s Internal Rules of Management.

His complaint does not cite any specific breach of the Companies Act or the Capital Markets Authority Act regarding the capitalisation of the bank in the creation, allocation and issuance of its shares. If he is not a shareholder or a depositor with the bank, he lacks the locus standi or the capacity in law to make the kind of allegations he is making. To sustain a claim of impropriety, Patel ought to demonstrate that Mr. Mwangi has done something wrong while discharging his duties in his capacity as director qua director at Equity Bank and not in any other capacity. Secondly, the improper act must be illegal or unlawful and thirdly the act must have been prejudicial to the interests of the bank or have occasioned loss to another person. Without these elements, the attack on Mr. Mwangi regarding his past association with another institution is spurious at best.

The CBK confirmed that it has received similar generalised complaints against Equity in the past. What has spurred these attacks against the bank and its management? The detractors of Equity have not produced any specific evidence of wrong doing or breach of the law on the part of Mr. Mwangi or the Board of Directors of the bank. They prefer to remain anonymous and their attacks are mere generalised accusations which do not disclose what fiduciary duty they are owed by the bank. The public is thus entitled to construe their accusations as unethical business practice by desperate competitors or political mischief by persons acting at the behest of the competitors. Nevertheless, the allegations found their way to parliament last week and Honourable Members of the August House devoted considerable legislative time to debate them. And there lies the irony. Is there a hidden hand behind these attacks?

The detractors of Equity base their attacks on its rapid growth as well as the attention its shares are receiving at Nairobi Stock Exchange. This exposes them as seriously uninformed. Equity is not a bubble. The bank has existed for over 20 years albeit in different legal capacities. First, as a Building Society registered under the Building Societies Act, and now as a Commercial Bank, registered under the Companies Act and licensed under the Banking Act. It was during its former existence that the bank’s unique business model and brand were conceived and nurtured. Its is this model that has appealed to many Kenyans in the lower end of the industry and attracted cognition and applause from international bodies.

Equity’s is foundation was laid during its days as building society. Curiously, the institution did not attract much attention then from competitors and politicians. Its competitors in the financial sector then ignored or laughed it off at best. When Equity took its brand to the low-income earners in the countryside and the poorer neighbourhoods of our cities it found a ready market. A population that had been rudely turned away and denied access to financial services by the multinational institutions that had closed shop and withdrawn services from these areas welcomed the bank with open hands. The bank revolutionised and demystified banking when it adopted a unique marketing strategy. It opened marketing stalls along the streets of Nairobi and rural markets and earned the stale joke as the “Hawking Bank”. The strategy worked well and it has made Equity what it is today. When it hit the mark of 1 Million depositors, the bank went further to reduce or completely remove charges for many services offered to its customers. Its main competitors are now following the same strategy and model. Institutions that may have chided Equity in the past have now placed open stalls at strategic streets to sell their financial services. The current joke among the depositors of Equity Bank is that “our bank has since left the streets and hawking to those other Banks”. The managers of Equity can pride themselves that they set the pace which others are now following.

The attack on Equity is not just an attack on Mr. James Mwangi. It is an affront to local enterprise. Mr. Mwangi has broken the myth and demonstrated that indigenous Kenyans have the capacity to build and nurture local institutions that can compete well with major institutions from the financial capitals of the West. The foreign capitalist behemoths in Kenya must wake to the reality that local enterprise has come of age. They have to ready themselves to compete with “local irritants” that are fast invading their traditional territories.

Equity occupies a unique position as a bank developed by Kenyans for Kenyans in an industry dominated by foreign companies. It has existed as a Commercial Bank for slightly over three years. An allegation of fraud against a bank is a serious matter. The industry operates and is dependent on trust. The acts of bankers must be acts uberrima fides, of utmost good faith at all times. Depositors and the general public must never be put in doubt or anxiety without any reasonable justification. The institution survived for long and did well as a Building Society. As a bank, it is even under more scrutiny and regulation by the Capital Markets Authority, the Supervision Division of the Central Bank of Kenya and the Registrar of Companies. Fraud investigators and regulatory authorities cannot and ought not to commence investigations on the basis of anonymous and generalised allegations that contain no clear evidence to raise a reasonable suspicion. The unsubstantiated allegations of fraud against Equity and its management could hurt the bank and adversely affect the financial sector if they are taken up by politicians and given an aura of a reasonable suspicion. If the MPs who raised the matter in Parliament had no other information apart from Patel’s letter, then their actions were clearly reckless, an abuse of parliamentary privilege and a violation of the Rules of Parliamentary Practice and Procedure in the Commonwealth. It would be prudent for the political class in Kenya to protect local institutions and leave regulatory matters to the established specialised agencies that are best suited and competent to handle them.