1. DES 602
1b. Using Kurakto’s model, discuss whether the Equity Bank’s organizational approach was
sufficiently entrepreneurial for it to be able to deal with the ever-dynamic challenges
Introduction
As per Kurakto’s entrepreneurial behavior model, an entrepreneur is one who recognizes
opportunity within confusion and this characteristic is possessed by Equity Bank’s leadership.
The bank’s organizational approach has proved that it is able to deal in the ever-dynamic change
Equity Bank is the Epitome of using Kurakto’s model to achieve its organizational goals. This is
seen in the way the organization adapts to External Transformational Triggers, including
intense competition. The organization also plans and more importantly Executes corporate
entrepreneurship strategies such as innovating its main income generating product (micro
loans) Additionally, there is evidence of the bank having supportive organizational culture in its
organizational antecedents. Moreover, the bank exhibits Entrepreneurial behaviors
showcased by its top management.
Challenges Equity faced before Mwangi Recruit
By 1993, non-performing loans (NPLs) made up 54 percent of Equity Bank’s portfolio,
accumulated losses totaled KSh8 33 million, and the society’s liquidity ratio stood at 5.8
percent well below the 20 percent required by law.
2. In 1994, the Central Bank of Kenya (CBK) found Equity to be technically insolvent with
poor management and inadequate board supervision.
The board of directors began to make strategic changes thanks to Kurakto’s model, which
dramatically shifted the business strategy and led to the company’s rebirth.
External transformation triggers
Since 2002, Equity Bank managers pushed to scale as quickly as possible. This was due
to intense competition from Barclays Bank of Kenya (Barclays), the largest financial
institution in the country at the time, which had 58 branches in 2006. The number of
branches expanded from 42 in 2006 to over 70 in 2008. Equity had three types of
branches: “regular” for their core individual and small business clients; “mobile” for rural
customers living in areas for which a permanent location was not yet economically
viable; and “prestige” for Equity’s emerging affluent segment who had grown with the
bank over time.
Execution of the corporate’s entrepreneurial strategies
The corporation’s pursuit of competitive advantages through commitment and actions
framed around entrepreneurial behaviors saw the bank innovate its main income-
generating products which are micro-loans on the order of KSh 16,000. Equity, with the
leadership of James Mwangi, shifted to small loans since they offered a less competitive
market than mortgages, while also representing an opportunity for growth and innovation.
3. The company did more than simply swap financial products; it underwent a company-wide
vision and mission process that firmly committed staff and management to the micro-finance
sector.
- New and existing executives and staff received self-awareness and management skills
training that created a fresh appreciation for their ability to effect change within the
microfinance market.
- The training provided an understanding of the microfinance sector and the enormous
benefits their work could bring to Kenyan communities. Together, these changes paid off.
From 2000 to 2006 the company’s pretax profit grew at a compound annual growth rate
of 79 percent, from KSh 33.6 million to KSh 1,103 million.
Organizational antecedents
Equity bank’s supportive organizational Culture
Mwangi replicated the openness of the branches within the inner workings of the bank itself
by having a supportive organizational culture. He and his executive managers maintained
open door policies, even as the organization stretched beyond 1,000 employees. As Equity
evolved from a family-run to a professionally managed institution, the bank began to
explicitly celebrate meritocracy. The top 10 percent of performers were placed on rotational
4. programs to help them develop as future bank leaders. Highly experienced executives were
recruited from a range of competitive banks and other multinational institutions. Every
employee was placed on a six-month probation so that cultural “fit” could be assessed in real
time. Individuals who did not actively uphold the company’s values were soon counseled
out. Employees at every level, both at the corporate office and within the branches, shared a
firm commitment to customer service. Equity’s secondary role as an indigenous community-
building organization (versus a large multinational) gave employees a sense of purpose and
passion for their careers. As Alex Muhia noted, “The majority of employees see what we do
as a calling. It’s not about the money … we believe in changing the destiny of normal
Kenyans in a positive and non-exploitative manner.” Nonetheless, as the bank evolved, HR
managers ensured that salaries and benefits were in line with the rest of the industry. Medical
care and pensions were part of most compensation packages and an employee share
ownership program (ESOP) was
Entrepreneurial behaviors
James Mwangi (Equity Bank’s C.E.O) was the most critical hire for Equity Bank. Before he
was hired by the bank, Equity had the following financial conundrums:
- By 1993, non-performing loans (NPLs) made up 54 percent of its portfolio,
- Accumulated losses totaled KSh8 33 million and
- The bank’s liquidity ratio stood at 5.8 percent well below the 20 percent required by law
5. Mwangi’s Entrepreneurial mindset and effective governance mechanism quickly
contributed to the company’s turnaround efforts.
His leadership style involved:
1) motivating staff to make EBS the leader in its sector (which ultimately became the
company’s creed)
2) providing systematic training to build technical skills and boost confidence
3) delegating responsibility, creating incremental challenges and rewarding performance.
After becoming CEO in 2004, Mwangi continued guiding Equity’s transformation from a
mortgage financing provider to a savings and loan institution, a path completed on January 1,
2005. In August 2006, Mwangi also oversaw the bank’s listing on the Nairobi Stock
Exchange, with an initial valuation of K.sh 6.3 billion.
Conclusion
Equity Bank's organizational approach has been sufficiently entrepreneurial for it to be able
to deal with the ever-dynamic challenge of the banking industry. The bank has demonstrated
a willingness to take risks, experiment, adapt, and coordinate, all of which are essential
elements of entrepreneurial success.
