PlaNet Rating - EBS Kenya by eox13091

VIEWS: 119 PAGES: 48

									PR090801




           www.planetrating.org

                                            GIRAFE methodology
                                            Appraisal and rating in microfinance
                                            Rating Report
                                            In collaboration with




                                            Equity Building Society
                                            Nairobi, Kenya

                                            PlaNet Rating conducted the GIRAFE rating mission of EBS
                                            with Alice Nègre (supervisor), Josephat Mboya (KAS) and
                                            Quentin Delescluse. The mission was conducted in the field in
                                            June 2001.




                                            76 rue du Faubourg Saint Denis 75 010 Paris France
                                            Tel 33 (0) 1 53 24 31 31  Fax 33 (0) 1 53 24 11 57
              Email rating@planetfinance.org
                                                PlaNet Rating        Equity Building Society (EBS), Nairobi - KENYA, June 2001




Equity Building Society                                                                                        First appraisal:
                                                                                                               June 2001
                                                  Kenya
                                                                     Final rating : G4*
                                                                     Composite rating: babbab
                                                                     Trend : +
                                                    G Maturity of the institution
                        E Total financial self sufficiency    0,35       G Balance/efficiency
                      E Operating self sufficiency            0,30
                                                                                 G technical organisation
                                       E AROE                0,25
                                                                                     G w eight in terms of expenses
                                E AROA                       0,20                        G Internal skills
                                                                                                                           Rates obtained by
                                                             0,1
                                                                5                                                          EBS
        E Staff efficiency / Work load                       0,1
                                                                                            G staff turnover
                                                              0
                                                                                                                           Maximum rates
                                                             0,05
            E Operational efficiency                                                          G Training efficiency
                                                             0,00

         E Administrative efficiency                                                          I Technical support         NB: The maximum
                                                                                                                          height of each
                   F Debt/Equity ratio                                                      I Management of Information   peak              is
                                                                                                                          proportional to the
                   F Overall assessment                                                  I Technical department           weight in the final
                                                                                                                          composite rating
                A Contaminated port. > 31 d                                          R Risks' identification
                                A Loan w rite off                          R Risks' coverage
                           A Loan portfolio management               A Global balance of assets
                                                  A Pertinence of services



                                                                      Equity Building Society is a body corporate financial institution
                                                                      set up as a Building Society back in 1984. Though licensed to
                                                                      operate as a Building Society, it has been enabled to work and
                                                                      transact business as a commercial bank in Kenya. EBS
                                                                      changed from focusing on building & mortgages to microfinance
                                                                      in 1993/4. 2,363 customers (out of the total 87,500 holders of
                                                                      savings account) own Equity Building Society as shareholders.
                                                                      The Society offers both saving and credit products throughout
                                                                      its 10 branches (as at December 2000) located in Central and
                                                                      Nairobi provinces of Kenya. The society also operates 15
                                                                      mobile banking units in remote areas. Loan repayment is
                                                                      recovered through a borrower‟s saving account which acts as
                                                                      the collection point for monthly salary or farm produce
                                                                      remittances and daily business deposits.
                                                                      Managers:
                                                                      Chairman : Peter Kahara Munga
                                                                      Chief Executive Officer: John K. Mwangi
                                                                      Finance Director: James N. Mwangi

                            Nairobi and central                       Address: P.O. Box 75104, Nairobi, Kenya. Fifth floor, Fourway
                                provinces                             Towers, Muindi Mbingu Street,
                                                                      Tel: + 254-2-252576/83; Fax: + 254-2-252575
                                                                      Email: ebs@nbnet.co.ke

                                                                      Legal Status: Building Society.
                                                                      Activities: Savings, remittances Individual Lending (for medium
                                                                      and micro entrepreneurs, farmers, pensioners and salaried
                                                                      workers.




Bihac
                                         www.planetfinance.org
                                                                      3
                                   PlaNet Rating       Equity Building Society (EBS), Nairobi - KENYA, June 2001


                                             Table



     Final rating :   G4*                                                                                    3
KEY FIGURES, May 2001                                                                                       5
SWOT Analysis                                                                                               5
Summarized Financial Statements                                                                             6
Governance and decision making process                                                                      7
     Strategic positioning                                                                                   7
     Ownership and effective control                                                                         7
     Organizational structure                                                                                9
     Technical organization of the governance                                                              10
     Human Resource Management                                                                             11
     Leadership and strategy                                                                               12
Information and management tools                                                                          13
Risks analysis and integrated control system                                                              15
     Identification of risks                                                                               15
     Integrated Control System                                                                             16
Activities and loan portfolio                                                                             18
     Targets and markets                                                                                   18
     Ethics and Clientele                                                                                  18
     Competition                                                                                           19
     Loan portfolio analysis                                                                               21
     Saving Products                                                                                       25
     Other financial activities                                                                            26
     Non financial activities                                                                              26
     Asset management                                                                                      27
Funding: Liabilities and Equity                                                                           28
     Equity and quasi-equity                                                                               28
     Liabilities                                                                                           29
     Savings                                                                                               30
Efficiency and Profitability                                                                              31
     Adjustments                                                                                           31
     Efficiency                                                                                            32
     Profitability                                                                                         33
Annexes                                                                                                   34
     Financial statements                                                                                  35
     Details of loan products                                                                              40
     Description of savings products                                                                       47
     Branches activity                                                                                     48




                               www.planetfinance.org
                                                        4
                                         PlaNet Rating      Equity Building Society (EBS), Nairobi - KENYA, June 2001


             KEY FIGURES, May 2001

  Annual       APR    Outstanding Outstanding Outstanding Number                       Number of     PAR     Average
 nominal               Portfolio - Portfolio - Portfolio – of savers                     active   (>90days) cost of
    rate                 Kshs        USD         Euros                                 borrowers               debt
   28%       Between    Dec 00 :   Dec 00 :     Dec 00 :   Dec 00 :                     Dec 00 :   Dec 00 :
declining 34%-53% 479,952,570 6,141,428        6,518,870    71,682                        8,162    13.02%     8.27%
 balance      for all  May 01 :    April 00 :  April 00 :  May 01 :                    April 01 : April 01 :
for all loan products 645,355,089 8,205,405    9,568,684    88,547                       15,870    11.53%
 products


Administrative    Operating      ROA           AROA              ROE        AROE          Operating             Financial
  Efficiency      Efficiency                                                            Self-sufficiency     Self-sufficiency
    17.31%         30.95%        3.42%          3.8%             13.5%      16.1%           124.2%               119.2%




                               SWOT Analysis

Strengths:                                                  Weaknesses:
 Cost-effective credit delivery methodology                 Governance lying in the hands of two main people,
 Performing MIS                                               but great efforts are already made to change it.
 Clear strategy, mission and vision                         Internal audit department to strengthen.
 Strong buy in from clients (strong targeting, adapted      Although lower than commercial banks, the portfolio
    and client-oriented services )                             at risk is still higher than other MFIs.
 Management team and Board composed of
    experimented finance people                             Threats
 Operational and financial self sufficiency                 Management of the huge growth in activities ; going
 Mobilization of savings resulting in a stable and            into a new sector.
    diversified funding base                                 MIS yet to customize ; not loosing tight
                                                               management of the procedures.
Opportunities                                                Legal framework to be completed
 Commercial banks leaving rural areas                       Country risk




                                    www.planetfinance.org
                                                             5
                                                     PlaNet Rating       Equity Building Society (EBS), Nairobi - KENYA, June 2001


                                                                                     * Accounting adjustments were booked for interest
                       Summarized Financial                                          forfeiture on savings and suspended interests on loans.
                                                                                     That is why the figures we present here are different

                                                Statements                           from the ones in EBS audited financial statements (see
                                                                                     E area).

             Summarized Balance Sheet
Kshs                                                                  31/12/98         31/12/99     Evolution        31/12/00     Evolution
Cash and due from banks                                                 53 994 848     117 820 777    118,21%        120 909 879      2,62%
Short term investments                                                174 483 366      210 845 068     20,84%        438 003 241    107,74%
Other short term assets                                                  8 136 507        8 665 444     6,50%          16 440 246    89,72%
Total gross outstanding portfolio*                                    218 187 287      316 713 556     45,16%        479 952 570     51,54%
(Loan loss reserve)                                                    -23 367 588      -28 481 284    21,88%         -34 128 410    19,83%
Long term investments                                                            0                0     0,00%                   0     0,00%
Fixed assets                                                            55 244 815       83 696 534    51,50%        238 535 288    185,00%
                                                    Total Assets      486 679 235      709 260 095     45,73%      1 259 712 814     77,61%
Savings                                                               425 147 867      607 510 039     42,89%        977 806 147     60,95%
Short-term liabilities                                                  14 546 185       36 005 731   147,53%          40 811 891   138,43%
Long-term liabilities                                                            0                0     0,00%          46 562 428     0,00%
Equity and quasi equity                                                 46 985 183       65 744 325    39,93%        194 532 348    195,89%
                                      Total Liabilities & Equity      486 679 235      709 260 095     45,73%      1 259 712 814     77,61%


           Summarized Income Statement
Kshs                                                                      31/12/98        31/12/99 Evolution         30/12/00    Evolution
a- Interest and similar income                                        81 038 290      86 650 742    +6,93%         132 267 698   +52,85%
b- Interest and similar expenses*                                     50 091 580      27 610 378    -44,88%         66 852 265   +142,13%
c- Gross financial profit/loss [a-b]                                  30 946 710      58 922 281   +90,40%          65 415 433   +11,02%
d- Loan loss provisions and write-offs                                13 245 797      10 000 000    -24,50%         10 379 744    +3,80%
                                    e- Net financial Profit / Loss      17 700 913      48 922 281 +176,38%           55 035 689 +12,50%
g-Operating expenses                                                  48 126 105      65 960 497   +37,06%          97 926 037   +48,46%
                                   i- Net operating Profit / Loss       17 885 244      24 940 060 +39,44%            33 645 794 +34,91%
l- Non Operating Profit / loss                                                -            63 600                         8 000
            m- Net Profit/Loss prior to donations, before tax           17 885 244      25 003 660 +39,80%            33 653 794 +34,60%
Exceptional income (subsidies)                                                -                -    +0,00%                   -    +0,00%
                                     p- Net profit/(loss) after tax   11 751 562      15 001 359   +27,65%          17 525 948   +16,83%


             Summarized Balance Sheet
Euro                                                                  31/12/98         31/12/99     Evolution        31/12/00     Evolution
Cash and due from banks                                                    745 100       1 604 108    118,21%          1 642 237      2,62%
Short term investments                                                  2 407 778        2 870 616     20,84%          5 949 101    107,74%
Other short term assets                                                    112 279          117 978     6,50%             223 297    89,72%
Total gross outstanding portfolio*                                      3 010 869        4 311 995     45,16%          6 518 870     51,54%
(Loan loss reserve)                                                       -322 460         -387 767    21,88%            -463 543    19,83%
Long term investments                                                            0                0     0,00%                   0     0,00%
Fixed assets                                                               762 349       1 139 513     51,50%          3 239 863    185,00%
                                                    Total Assets        6 715 915        9 656 442     45,73%         17 109 824     77,61%
Savings                                                                 5 866 815        8 271 135     42,89%         13 280 877     60,95%
Short-term liabilities                                                     200 730          490 211   147,53%             554 320   138,43%
Long-term liabilities                                                            0                0     0,00%             632 426     0,00%
Equity and quasi equity                                                    648 371          895 097    39,93%          2 642 201    195,89%
                                      Total Liabilities & Equity        6 715 915        9 656 442     45,73%         17 109 824     77,61%


           Summarized Income Statement
Euro                                                                      31/12/98         31/12/99 Evolution        30/12/00      Evolution
a- Interest and similar income                                         1 118 285        1 179 734    +6,93%           1 796 502    +52,64%
b- Interest and similar expenses*                                        691 237          375 910    -44,88%            908 009    +142,13%
c- Gross financial profit/loss [a-b]                                     427 048          803 823   +90,78%             888 493    +10,80%
d- Loan loss provisions and write-offs                                   182 785          136 148    -24,50%            140 981     +3,80%
                                    e- Net financial Profit / Loss       244 263          667 675   +177,05%            747 512    +12,23%
g-Operating expenses                                                     664 115          898 040   +37,06%           1 330 063    +48,46%
                                   i- Net operating Profit / Loss        246 807          341 162   +40,11%             456 988    +34,27%
l- Non Operating Profit / loss                                                -               866    +0,00%                 109     +0,00%
            m- Net Profit/Loss prior to donations, before tax            246 807          342 028   +40,46%             457 097    +33,96%
Exceptional income (subsidies)                                                -                -     +0,00%                  -      +0,00%
                                     p- Net profit/(loss) after tax      162 165          205 848   +28,66%             238 043    +15,92%

                                                www.planetfinance.org
                                                                          6
                                         PlaNet Rating       Equity Building Society (EBS), Nairobi - KENYA, June 2001




            Governance and decision
                             making process
                                                             b
                                                          Operating under a building society statute, the society
changed its positioning in 1993/4: it is now no longer providing mortgage/housing loans, but aims at filling up the
missing middle in the banking sector. The vision is well shared and articulated by the management, staff and the
Board of Directors.
Governance is still under construction, as the two main deciding managers are also Board members and the
two of the main shareholders. Given the very recent date of the development of the Board, the Finance and
Executive Director are the key players who provide both the vision and the operational direction of the
society. As for now, strategy and operations rely on these two people ; but the process of diversifying leadership
is launched and fast going : 4 new Board Members have been elected in July 2000 – building a skilled and
committed Board; an important effort is made towards the recruitment and involvement of a knowledgeable and
experienced middle management team.



                            Strategic positioning
                                                         Equity Building Society‟s mission is to “mobilize
savings, term deposits and other funds, for efficient provision of loan facilities to the microfinance and missing
middle sector, especially small and medium enterprises, to generate sufficient and sustainable profits, in order
to contribute to the members welfare and to the national economy”. It seeks to bridge the gap left by
commercial banks and MFIs, and thus serves the ”missing middle niche”. This mission is well shared among
Directors, management and staff.



            Ownership and effective control
                                                         Although the AGM works democratically, governance
has been concentrated in the hands of only three people up to July 2000: the Board was only composed of
three members, sitting for more than 7 years each and among which are the two main managers.
Now that the society is making profits, EBS needs to diversify the decision making process and set up a
more democratic governance, with a real split between operational management and strategy making. The
three old Directors are well aware of it and already have launched the process: appointment of new Directors
(external to the institution), recruitment of new managers.

                                                           A possible risk is that, involving the shareholders might
bring a change in the vision of the institution. Although current Directors do represent different regions in Kenya,
and come from rural areas, they are not the typical shareholder, but help set up the vision of the institution from
a professional banking point of view.

Statutes
EBS registration as a building society demands that they offer long-term loans (10-15, 20 years), large loan size
and require solid collateral like land or building from borrowers. As such, business operations are aimed at
financing mortgage loans for individuals and development of housing estates or purchase of houses. The
recent shift from this sector to microfinance meant that the society offers smaller loans at shorter periods
without necessarily asking land/house as collateral. A series of consequent amendments to the building
society act has enabled EBS to venture into microfinance without any contravention of the banking act
in Kenya. This law has now been harmonized with banking/central bank Acts to the extent that building and
mortgage houses can now ask other forms of collateral besides land or solid collateral. Additionally, societies
can lend for whatever purpose. Although EBS does not intend to go back to housing loans, it feels comfortable
and would continue to operate under the building societies statute (even when the microfinance bill – under
discussions - is ready).

                                     www.planetfinance.org
                                                              7
                                                        PlaNet Rating          Equity Building Society (EBS), Nairobi - KENYA, June 2001


Ownership and effective control

EBS is owned by 2,363 shareholders, coming from the areas where the society operates. Awareness is being
created through field days, advertisements, marketing campaigns and advocacy by well-selected personalities
in the target market. As at Dec 2000, a small number of shareholders of the institution owned 62% of the total
shareholding capital of Kshs. 50.8 million shillings which is equivalent to 0.7 million USD. Dividends have been
paid for the first time in 2000 (15% of the nominal value per share ).

A 7-member Board of Directors provides governance in EBS. The Chief Executive Officer and the Chairman
have been in the board for the last 18 years, with the Finance Director coming in 8 years ago. Four Directors
                                                                                             1
were recently nominated by the three Directors, before being approved by the Central Bank and then endorsed
by the AGM. All directors are available and attend all meetings, including participation in marketing activities of
the society.

The voting rules at the annual general meetings (AGM) are “one shareholder one vote”. AGM attendance is
quite low (around 10% every year), but usual in Kenya.

                Profile of Directors                               Qualifications                                       Experience
    Peter Kahara Munga (58 years)                      Cambridge School Certificate                  25 years in the Public Service Commission of
    Chairman                                           Certified Public Secretary                    Kenya
    John Kagema Mwangi (56 years)                      Bachelor of Commerce (Banking)                30 years experience in banking at managerial
    Executive Director & Chief Executive                                                             level
    James Njuguna Mwangi                               Bachelor of Commerce (Accounting),            13 years in banking at Finance and Management
    Executive Director & Finance Director              CPA (K)                                       positions
    Benson Irungu Wairegi                              Bachelor of Commerce (Hons), CPA              Managing Director of British American Insurance
                                                       (K)                                           Company
    Earnest Kahiro Kimani                              Bachelor of Law (Hons) and Diploma            20 years experience as an advocate of High
                                                       in Law - Kenya School of Law                  Court of Kenya
    Frederick Mwangi Muchoki                           Cambridge School Certificate                  Medium sized businessman, Executive Director
                                                                                                     of Presta & Office Equipment
    Professor Mwangi S. Kimenyi                        M.A. in International Affairs; Ph.D. in       Professor in Economics. Currently Executive
                                                       Economics, University of Virginia             Director of Kenya Institute of Public Policy and
                                                                                                     Research Analysis (KIPPRA)




1The Central Bank may disapprove the nomination of Board Members. Resumes have to be sent before the presentation to the AGM, so as to receive the Central Bank
approval.
                                                   www.planetfinance.org
                                                                             8
                                                               PlaNet Rating            Equity Building Society (EBS), Nairobi - KENYA, June 2001


                                    Organizational structure
                                                                                        EBS is operating through a network of 10 branches
all over the Nairobi and Central provinces in Kenya.

Organizational Chart
                                                                                             SHAREHOLDERS
                                                                                        ANNUAL GENERAL MEETING




                                                                                              BOARD OF DIRECTORS
                                                                                               BOARD MEETINGS




                                                                                           CHIEF EXECUTIVE

                                            FINANCE DI RECTOR




      REGIONAL                                           M.I.S.                  FINANCE & OPERATIONS                          SPECIAL PROJECTS            CHIEF INTERNAL
                                                                                       MANAGER                                                               AUDITOR &
      MANAGERS                                         MANAGER                                                                  R&D MANAGER                   QUALITY
                                                                                       Vacant V                                                               CONTROL
                                                                                                a                                                             MANAGER
                                                                                                c
                                                                                                a
      MARKETING                                  BRANCH            COMPUTER MANAGER             n
                                                                                               CHIEF                       CREDIT             HR & ADMINSTRATION
      MANAG ER                                  MANAG ER                                    ACCOUNTANT
                                                                                                a                          MANAGER                  MANAGER
                                                                                                t

      MARKETING                               ASSISTANT                                              HEAD OFFICE                  ASSISTANT            EXECUTIVE
      EXECUTIVES                              MANAGER                                                ACCOUNTANT                    CREDIT              SECRETARY
                                                                                                                                  MANAGER

                      CREDIT                CASH OFFICER               COMPUTER                ACCOUNTS                CREDIT                  SENIOR              AUDIT
                      OFFICER               MOBILE OFFICER           ADMINSTRATOR              ASSISTANT             SECRETARY               SECRETARY/            ASSIST.
                                                                    COMPUTER OFFICER                               CREDIT OFFICER           RECEPTIONIST

      MARKETING           CLER        RECEPTIONIST
    REPRESENTATIVE          K          SECRETARY                                                                              CREDIT                TYPIST
                                                               CASHIER/                          ACCOUNTS
                                                               CLERKS                                                         CLERK
                                                                                                   CLERK
                                                                                                                                              DRIVER/MESSENGER
                               DRIVER MESSENGER




Head Office
Located in Nairobi, just above the Nairobi branch, it is the place where all national managers are based.

Head office role in relation to other branches could be more clearly stated: although not considered as a
                                                    1
branch, HO is collecting 50% of total fixed deposits ; head office managing staff is the acting management staff
of Nairobi branches, which are the two only branches without formal full time dedicated Branch Manager
               2
heading them . Although this solution might appear to be cost effective in the short term, it does not allow a
clear financial monitoring of branches performances.

Network
All up-country branches are located in the Central Province of Kenya : Kangema (1984), Karatina (1985),
Kiriaini (1985), Kangari (1997), Thika (2000), Othaya (1999) and Murarandia (1985). The management of the
Society implements a very active expansion policy in locations where commercial banks are in the
process of leaving and are closing their outlets. One more branch (Kerugoya) has started its operations in
June 2001 and another one (Nyeri) is meant to do so later in the year.



1 Although no credit and saving operations should be directly handled at the head-office level (not specifically licensed to operate financial activities), it is considered as a
branch for reporting and management purposes: consolidated statements show a large amount of fixed deposits at head-office (Kshs. 220.8 million as at May 2001, i.e.
50% of total fixed deposits). This has been designed in order to retain apart from any branch the operations that were made due to national managers ability to collect
deposits from corporate institutions.
2 There is no specific manager for these branches. The corporate management staff takes charge under their respective responsibilities after the junior staff has done the

rest of the work. An exception is the credit operations, which are handled by the credit manager. He thus deals both with delinquency at the national level and manages the
whole portfolio for Nairobi branches.
                                                          www.planetfinance.org
                                                                                         9
                                                             PlaNet Rating           Equity Building Society (EBS), Nairobi - KENYA, June 2001


Branches are considered as profit centers : all the costs identified are allocated to a specific branch (but the
costs linked to the head office are not reallocated – thus advantaging the Nairobi branches). All of them
issue both a balance sheet and an income statement.
 Good communication: except with Murarandia (very remote location, no telephone and very poor
   infrastructure), the head office and branches enjoy good communication : reports are issued, information is
   verified via the phone daily and exchange of ideas is done quarterly thanks to senior management meetings.
 Efficient decentralization of operational decisions: strategy, institutional policy making and human
   resources management are centralized at the Head office. Saving and credit operations are totally
   decentralized at the branch level (with a limit of Kshs. 30,000 (about 380 USD), for loan granting). Even
   tariff setting is decentralized, so as to adapt to the local needs of the clients and for good competitive
   positioning.
 “Flexible” standardization, to be improved: the decentralization of most operational matters have resulted
                                                           1                                             2
   in some lack of standardization between the branches and the difficulty to conduct internal audits . If not
   really a weakness for the moment, it is becoming one with the exponential growth of the activities.
(see information on branches activity in the annexes)

Technical committees
Business decisions are based upon 7 technical committees gathering and synthesizing information on various
areas (audit, strategy, marketing, customer needs and portfolio, finance and investments, information
technology, meetings on operations and management). Most of these are Management committees except the
audit committee which is a board committee.


                        Technical organization of the
                                                             governance
                                                     Decisions are made after sharing information in the
management meetings. During these meetings, discussion is based on quarterly performance reports,
comparing budgeted objective and realized figures. Although there is evidence that discussion takes place,
reports present only figures, not analyzed to guide decisions. Therefore, governance relies on thorough
monitoring of financial performances and field information, but does not keep good track of this
analysis.

Budgetary process. The process involves all branch managers who play a key role in its implementation. It is
                                                                                 3
well guided by top management who provides global parameters to branch managers . This budget is closely
monitored first, on monthly basis by branch managers who are keen on their performance targets –although
this involvement varies from one branch to another, and secondly by the senior management through their
quarterly meetings. Branches compete for a trophy quarterly, awarded among other things for those who
exceed their targets and show great improvement in operations ; reprimands are effected if a branch‟s
performance is not acceptable (e.g. transferring staff).

Business planning
                                                                                             4
The budget is linked to a 5-year strategic plan drawn by the board of directors (2000 – 2004) . This plan is being
reviewed internally every six months to update it, although this process is still informal.




1 The price of the borrowing share increased in the statutes, but was not increased in all branches ; loan contracts do not have the same format in all branches ; archives
are not kept in the same way everywhere.
2 Tariffs set by branches are not well known at head office

3 Using a template, branch managers make their estimates for the coming year. The budget drafts from the branches are studied and reviewed by the accounts department

(Chief Accountant and Finance Director) at the head office. A negotiation meeting then takes place for senior management, where branch agreement is secured on level of
savings, loans, bank balance requirement and profitability. The final consolidated version of the budget is then reviewed with the board of directors before approval.
4 The 2000 – 2005 business plan has been designed as follows : top management drew a draft plan, which was submitted to the CE and the Finance Director. It has then

been commented by external auditors ; and finally amended and adopted by the Board.
                                                         www.planetfinance.org
                                                                                         10
                                                              PlaNet Rating             Equity Building Society (EBS), Nairobi - KENYA, June 2001


                      Human Resource Management
                                                         Great effort has been invested in creation of a
knowledgeable middle management over the past one year. EBS considers staff management as one of the
most critical challenges and is therefore deeply involved in staff development : formal training, close field
assistance and personal relationship. This focus resulted in a widespread internal promotion policy, which
                                                      1
enabled to build a strong staff loyalty over the years .

However, there is no department specifically dedicated to human resources management : it is the responsibility
                                                                                       2
of the Finance Director, assisted by an executive secretary for administrative purposes .


Human resources procedures and profiles
Recruitment policy is both in-house and centralized.
                                                                                    3
 EBS has fully internalized staff recruitment: no external advertisement is done , which results in strongly
  motivated staff and minimal recruitment costs. Moreover, EBS focuses on internal promotion whenever
  possible and recently managed to poach staff from Kenya‟s high-rank commercial banks to fill some of its
  management positions.
 The appraisal of staffing needs is not systematically planned, but rather performed on a continuous basis.
  Although supported by the feedback from branch managers, it is centralized at the Head-Office level, where
  recruitment is collectively conducted by a team of 5 to 6 managers, and properly formalized.

                                                                                       31/12/98            31/12/99               31/12/00        31/5/01

Number of paid staff of the MFI =1+2+3+4 (end of period)                                        92                   109                 117            144
1. Management4                                                                                   9                    12                  18             22
2. Clerical staff 5                                                                             70                    85                  81             97
3. Administrative staff6                                                                         3                     4                   8             17
4. Support staff7                                                                               10                     8                  10              8
Total number of paid staff recruited over the period                                            17                    25                  21             29
Number of staff left over the period                                                             4                     8                  13              2
Turnover rate of the staff                                                                     n/a                   8%               11.5%           1.5%
Average length of employment of the staff (month)                                               51                    49                  48             39
Training expenses per year                                                               1,277,177             2,711,392           3,399,467      2,768,172
% of annual budget set for training                                                        106.4%                108.4%              113,3%          46,1%


    Profile of Management                   Job Title                               Qualifications                              Banking              Experience within
             Team                                                                                                              experience                  EBS
                                                                                                                                 (Years)
    John K. Mwangi                   Chief Executive               Bachelor of Commerce (Banking)                            30                     15

    James N. Mwangi                  Finance Director              Bachelor of Commerce (Accounting),                        13                     8
                                                                   CPA8 (K)
    Ben G. Nyutho                    Regional Manager              EACE, AIB II                                              28                     16
    Samuel Wainaina                  Special Project and           Bachelor of Commerce, MBA, CPA (K)                        2                      2
                                     R&D Manager
    Andrew Kimani                    MIS Manager                   Bachelor of Science (Electrical and                       4                      1
                                                                   Electronics Engineering)
    Frederick Okwaro                 Computer Manager              KACE                                                      10                     1
    Paul Gitahi                      Internal Audit                KACE, CPA II                                              16                     1
                                     Manager
    Ambrose Ngari                    Credit Manager                KACE, CPA                                                 13                     4
    Gerald G. Warui                  Chief Accountant              KCE, CPA (K)                                              8                      3
    Patrick N. Kaburu                Marketing Manager             KACE, CPA I                                               14                     14


1 However not reflected in the high turnover of 11.5% for year 2000 (caused by dismissals, not resignation)
2 It results in proper staff administration, relying on formal procedures : exhaustive staff files are properly held at the head-office, comprising job descriptions signed, all
correspondence (salary increment, greetings…) and staff appraisal documentation. Moreover, every staff has to wear a badge of office.
3 recruitment is only based on the spontaneous applications received by the institution (30 to 40 weekly)

4 Executive Director, Finance Director, Department Managers, all Branch Managers

5 Branch assistant managers, cash officers, credit officers, cashiers, transfer clerks
6 Assistants, secretaries

7 Drivers, messengers, tea makers…

8 Certified Public Accountant

                                                           www.planetfinance.org
                                                                                         11
                                                        PlaNet Rating         Equity Building Society (EBS), Nairobi - KENYA, June 2001




Promotion and motivation
Historically, salaries have been “indexed” to what the institution could afford. Therefore, during the long period
of financial loss, salaries were low. Now that the financial situation of EBS is good, salaries have been largely
adjusted to the market price through significant salary increments over the last three years, particularly for 2001,
with some salaries having more than doubled over the last year. The management does this in recognition of
staff‟s role and worker‟s quality performance in the operations of the Society.
In addition to salary increments, a bonus is granted to staff on the basis of the results of a very formalized yearly
assessment process, which leads to up to 2 month salary bonus.

Internal skills & formal training
Internal skills are high at head-office managerial staff, due to the recruitment of experienced professionals.
Identified staff weaknesses are addressed through an intensive training programme for both managers and
operational staff, which would however get some benefit from extension in order to guarantee staff skills on the
long term.

                                                               1
Thanks to the support of European partners , EBS has outsourced formal capacity building to well recognized
                 2
external trainers . The main courses attended in 2000 and 2001 include Customer service, Law related to
banking and finance, the use of Bank 2000 software and Credit management. A proper follow-up of these
trainings has been observed, from both the institution and the partners themselves. In addition to those regular
training programs, specific training sessions are organized for the senior managers on various management and
organization topics, both in Kenya and abroad.



                                 Leadership and strategy
                                                          The ED and the FD drive the leadership in a capable
and knowledgeable manner and have given themselves to the “democratization” of leadership : creating a
board and a middle management.
Apart from the control exerted by the regulating authorities, Equity Building Society is free of any external
influence. International partners have no influence on the conduct of business operations. Their control is limited
to the monitoring of the implementation of the projects they fund (e.g. schedule of training sessions).

Strategy
The society has a 5-year business plan running from 2000-2004. The document outlines the long-term
strategy and the expected milestones in terms of outreach, number of branches, customers, and market
penetration.

The table describes the major changes expected:
    Services to be offered                 Studying the opportunity to deliver group-lending products in an efficient and cost-effective manner,
                                           with technical support from Swiss Contact
    Operational Methodology                Preparing to start wholesale credit to microcredit NGOs.
                                           Simplifying and automating customer information ; Investigating on a cash dispensing system like the
                                           formal bank ATMs.
    Organizational structure               Opening new branches ;          Hiring additional Internal audit staff
                                           Strengthening HR management
    MIS                                    Improving the customization of the MIS, finalizing some report formats
                                           Launching a website ; Investigating the implementation of Wide Area Network
    External regulation/supervision        The bill for Microfinance Institutions in Kenya is currently under formulation. This will seek to regulate
                                           both microfinance business and the institutions. The MFIs in Kenya form part of the wider informal
                                           sector offering financial services and these are not under the armpit of the central bank of Kenya.
                                           However, EBS does not plan to move operations under this forthcoming legislation. It intents to stay
                                           on the building societies act.
    Methods of financing                   Equity Building Society has abandoned its former objective to seek a foreign strategic partner to hold
                                           25% shareholding.

1   Micro Enterprise Support Programme – MESP – and European Union EU-ACP Business Assistance Scheme -EBAS
2   Total Quality Training Consultants, Kenya Institute of Bankers and the Kenya School of Monetary Studies
                                                           www.planetfinance.org
                                                                                        12
                                                           PlaNet Rating          Equity Building Society (EBS), Nairobi - KENYA, June 2001


         Information and management
                                                                      tools
                                                                                  a
                                                           The MIS is clearly an asset for the society. Since its
implementation in June 2000, it has actively participated in the improvement of the efficiency and the
management. The information process is securely handled in Bank 2000 system, which integrates loans and
savings tracking and accounting. The borrowers‟ performance is carefully traced on a month-by-month basis.
Good information is available monthly, although the same has not been appropriately selected, analyzed and
widely utilized in the entire organization.
However, staff still performs a few manual/parallel activities in branches (listing of loans, control purposes) and
head office (consolidation). Head office receives a lot more information, which does not seem to have been
entirely used. Reports have not been adequately designed for various users in management positions. Some
improvements could be made in report designing, both for reporting purposes and operational management.

                                                      Moving from housing finance to microfinance, the
Society does not yet have a database with typical information relevant to MF activities (social and economic
information on the customers). This shortcoming has been identified by the society.

                                                       Systems, however complete and perfectly implemented
as they are, need to be used with caution. With the computerization, the institution will more and more rely on its
computer system, about which most of the knowledge is on a very limited number of staff. The provisioning
procedures and procedures to suspend accruals of interest are no longer clear to everyone, as the system is
computing them automatically. EBS should be careful on not to rely too much on automatic procedures.


Software and hardware
EBS fully computerized head office and branch operations in the last quarter of 2000. The process was
                                                                                                       1
efficiently carried out at a record time of 4 months with all 8 branches using Bank 2000 software on 133
Pentium PCs (including 11 servers) for all aspects of their operations. All computers within branches are linked
with a local area network (LAN) ; communication between branches is done through telephone and documents
are sent via courier service.
The MIS team estimates that only 10% of the total capacity of the MIS is currently used, thus leaving room for
many improvements. A lot of useful and innovative ideas are thus being explored (remote administration and
management system, outward transfer clearing system using NKR cheque reader, touch screen information
desk for clients, etc.).

 Accounting system
  The accounting process is decentralized at the branches with a specific cash officer responsible for
  entering the data. Transactions are recorded daily, checked and verified by the system through a control
  process at the end of each working day. Some of the vouchers used by entry clerks for internal transfers are
  not computer generated.
  Accounting is done on accrual basis.
  Branch information is forwarded to the head office through diskettes for monthly consolidation of the financial
  statements (manually done). Branch expenses incurred through the HO (centralized purchase of furniture,
  paper, etc.) are reallocated at the end of each month to each branch.
  The Bank 2000 system easily interfaces with other systems, e.g. external MS Access database for
  automated payroll system.
  The quality of the information generated is good. However, improvements can be made on the consolidation
  of accounts (performed on spreadsheets, quite slow and time demanding for the HO accounting
  department).



1   Bank 2000 is an integrated banking and database software – DOS based, which runs on FoxPro.
                                                       www.planetfinance.org
                                                                                    13
                                                            PlaNet Rating            Equity Building Society (EBS), Nairobi - KENYA, June 2001


 Loan tracking system
  Loans are disbursed and recovered through the savings account of the client. The portfolio is thus easily
  monitored. Aging balance is available at any time. Information on the present portfolio is available and
  reliable. The system allows for timely identification of payment in arrears.
  The appraisal process, which is done by credit officers, is outside the system (kind of collateral provided,
  creditworthiness of the client, interview summary).

    Since computerization took place in June 2000, information on loans is easily available, except for historical
    information before June 2000 – which is difficulty to get.

    Client monitoring : the system does not allow for client profiling (except gender) ; it does provide the history
    of the loans taken by the client, but without keeping track of his previous records; it is not possible to print the
    entries passed on an account (for instance to hand out to the customer a detailed loan statement) ; although
    the technology used by EBS would perfectly allow such a monitoring.
    Moving from housing finance to microfinance, the Society does not yet have a database with typical
    information relevant to MF activities (social and economic information on the customers). This shortcoming
    has been identified by the society. Some customization has already been made following donor
    requirements (i.e. keeping track of clients gender). It will become increasingly difficult as the number of
    clients is fast growing.

    Overstating the portfolio outstanding amount : ledger fees, borrowing shares - that is all the fees linked
    to the granting of a loan are added and shown in the customer‟s loan account until he actually pays them.
                                                                                           1
    Moreover, the MIS keeps on accruing interests, even though loans are defaulting . This system leads to
    increasing the value of the portfolio (accrued interest on loans having at least one installment more than 90
    days late account by themselves for up to 5% of the outstanding amount declared by EBS, dec 2000).
    NB : Accounting adjustments have been passed. The amount that we report in the financial statements for
    outstanding portfolio does not include these accrued interests on loans defaulting for more than 90 days.

Procedures
In a very short period of time, the MIS team succeeded training the staff to both the use of the computer and the
use of Bank 2000. The software user guide has been deliberately kept short and only for managers use. The
basics procedures are well known and adhered to, at all levels.
                                          2
Security procedures are satisfactory . The archiving/filing system could be improved. Archives are secured
but the filing is poorly organized, leading to the loss of application form, contract files, both at the branch level
and the HO level.

MIS Team and MIS maintenance
 EBS has good internal team for its new MIS. These were well selected based on experience and ability to
  perform. They have hands-on experience with bank 2000 software and have worked in similar positions
  before. The team is motivated and seem to have the flexibility and support to be proactive and innovative.
  MIS activities are well co-ordinated and thought-out before implementation, a fact that has led to the quick
  breakthrough in computerization.
 The society enjoys good maintenance support from vendors of Bank 2000 or their agents. Although Bank
  2000 is MACCO system property, India, they have a very good local provider SSL. Popularity and wide
  usage in the local market was also another factor considered in selection. Other 14 banks in Kenya, besides
  EBS, use Bank 2000. This was a sure way of ensuring adequate support for the Software – which is critical
  in configuring new MIS. Copycat and Network Systems Kenya are the main suppliers of the hardware.
 Although the software is DOS based (limited resource mobilization, unfriendly and slow), it can be upgraded
  to use visual basic/windows application. This has already been developed and tested by another bank in
  Kenya.


1 Up to 90 days late, interest revenue is accrued in the outstanding amount (balance sheet) and the income revenue (income statement). After 90 days late, it keeps on
accruing in the outstanding amount but the double entry is made in a specific balance sheet provision (―suspended interest‖). See the adjustments in E area.
2 The backing up of the database occurs in diskettes kept off-site in different locations/branch, and hard copy files available at the head office. EBS uses two levels of

authentication into the system; NT and Novel – RSA 128B encryption including Bank 2000 passwords system. All database files within the system are encrypted, and
floppy locks are used to prevent unauthorized personnel to use the PCs and also to prevent spread of viruses. Both the savings and the loan module have amount
authorization limits for the data entry cashiers/clerks.
                                                         www.planetfinance.org
                                                                                        14
                                                              PlaNet Rating          Equity Building Society (EBS), Nairobi - KENYA, June 2001


         Risks analysis and integrated
                                               control system
                                                                                     b
                                                        Management has identified the main operational risks,
although going down market would deserve a closer monitoring of costs. Despite some weaknesses observed
in internal control (some lack of standardization and deviations from proper procedures; lack of strong focus on
cash management), Equity Building Society has had a strong will to implement external auditors‟ and regulating
entity‟s recommendations. These entities have enhanced tight control over the Society, resulting in a fairly
addressed risky environment.



                                          Identification of risks
                                                            The Society‟s activities have increased tremendously
over the last three years. The number of borrowers has jumped from 2,753 in 1999 to 8,162 in 2000.
Exponential growth therefore appears to be the main risk faced by the institution. It results in a wide range of
institutional and operational risks, identified as follows by the Chief Executive and Finance Director, along with
other Board Members.

Institutional risks

 Legal statute is not specifically designed for microfinance. Although building societies are now legally able
  to operate microfinance activities, there is still uncertainty regarding the draft microfinance bill. If it aims at
  harmonizing the statutes of this sector‟s operators, it might have some hardly predictable consequences.
 Capital requirements, which undermine the level of savings and deposits that may be collected by the
  institution (see F area).
 Controlling growth : the management of EBS is aware of the need to strengthen the internal audit
  department, which is currently addressed through the recruitment of two more staff.Democratization of
  governance still under process (see G area).
Operational risks

                                                                                         1
 Cash transport and keeping is well secured at all levels
 Credit risk, linked to going into microfinance. The credit methodology used by EBS (recovery through the
  saving account, abounded with salary and other remittances) is responsible for the good overall quality of the
  portfolio (strong collaterals). However, loan securities are not charged for loans below Kshs. 50,000, when
  these loans represent more than 92% of the number of loans granted from June 2000 to May 2001 (but only
  25% of the amount disbursed over the same period). In case of default, the institution can only sue the
  defaulting debtor on a civil court, with all resulting difficulties and inefficiencies.
  One disadvantage however, is that a sizeable proportion of EBS‟s clientele is engaged in tea farming ; but
  we see no potential risk, at least in the foreseeable future, of the tea sector performing poorly.
 Staff development. The rapid growth of the institution resulted in a great number of recruitments and thus a
  great number of new staff to train on the society operations. This issue is still being addressed by the
  Management, with the support of its international partners, through diversified strategies including relevant
  training programmes and recruitment of experienced external staff for key positions. Training initiatives are
  however limited by time capacity constraints.
                                                                                          2
 Administrative risks : deviations from proper procedures have been observed ; the implementation of a
  comprehensive policy is still in process.
 Fraud problems: some fraud in the recent past, but it seems to be no longer possible after computerization.
  However, segregation of duties is not always strong enough (cases where the branch manager is also the
  computer manager, having access to all data).
 Investing liquidities with poorly performing banks (although two of the best in Kenya), but risk is limited since
  investment is short term only (3-month fixed deposits).

1   Two safes in each branch and armed security guards both in branches and for cash transport.
2   security documentation, credit application (signature of letters of offer)
                                                           www.planetfinance.org
                                                                                       15
                                                              PlaNet Rating            Equity Building Society (EBS), Nairobi - KENYA, June 2001



Country risk

     Poor national economic environment, which resulted in a negative growth of –0.3% for year 2000
     Dry weather conditions, hardly affecting the informal sector (cf. the prolonged drought during year 2000)


Other risks not formally identified by EBS

 Downgrading of activities entails going into a really new business. The institution lends smaller and
  smaller amounts (down to Kshs. 500 – US$ 6.4), which require a stronger monitoring of cost effectiveness
  necessary.
                                                                               1
  Drop out rate : usually drop out rate is quite high in East African countries , leading to high operational cost
  for client canvassing and training. EBS is new in the microfinance sector and its operations have not been
  impacted by this drop-out phenomena.
 Technological risk. With the computerization, the institution will more and more rely on its computer
  system, about which most of the knowledge is on a very limited number of staff, which might be damageable
  to the institution in case of departure.
 High effective interest rate (between 34% and 53%). However, the lack of competitors on this specific
  niche and the strongly client-oriented approach of EBS currently largely offset the negative impact this could
  entail.
 Archives are not properly kept in branches, which can lead to the loss of information. This weakness limits
  credit officers efficiency as they cannot easily track customers‟ performance. Collateral are kept in a place,
  ID photocopies in another one, and previous contacts in a third one. This weakness / risk could be
  addressed by constantly improving the MIS.


                               Integrated Control System
                                                         The overall integrated control system regulating the
activities of EBS is efficient. The Audit Committee, whose role is to review internal audit, external audit, and
                                          2
Central Bank of Kenya reports secures it . The control exerted by the Central Bank of Kenya is particularly tight
and guarantees not only the monitoring of financial performance, but also internal operational procedures.

Internal controls
Although all key procedures are well documented, segregation of duties, branch manager supervision of all
operations and file documentation guidelines are not always complied with. However, these weaknesses do not
throw the overall internal control efficiency into doubt.

Internal audit
The internal audit department was created in 1998, made up of one Chief Internal Auditor and two assistant
auditors, supported by a dedicated secretary. The experienced Chief Internal auditor was poached from the
African Banking Corporation.
This department reports directly to the Audit Committee, and to the Chief Executive on a day-to-day basis. Two-
day branch visits are organized quarterly. However, the review of internal audit reports shows that the focus of
these visits is more on cash counts and procedures rather than credit inspections. The exponential growth of
credit operations is not adequately taken in account in internal audits.




1 Drop out rate is estimated to fall between 25-60% per annum in East Africa. Client exit is a significant problem for MFIs—it increases the cost of structure, discourages
other clients and reduces the prospects for sustainability for NGOs/MFIs
2 It also has the authority of approving internal audit procedure manual (reviewed after the computerization) and yearly audit timetable. It meets quarterly and is made up of

the Chairman of the Board, the Finance Director, one non-executive Director and the Chief Internal auditor, who is also the secretary of the Committee. The minutes of
those meetings are properly formalized. Findings are discussed with Branch and Assistant Branch Managers.
                                                           www.planetfinance.org
                                                                                          16
                                        PlaNet Rating       Equity Building Society (EBS), Nairobi - KENYA, June 2001


External audit
External auditors, who are elected each year by the shareholders at the Annual General Meeting, are subject to
prior approval by the Central Bank of Kenya.
EBS external auditors are Mungai and Associates, Certified Public Accountants of Kenya, a reputed medium
sized local audit firm in Nairobi. Mungai and Associated have been auditing Equity Building Society for the past
7 years (back to 1994).
Financial data provided in this report has been audited for the past three years (1998, 1999, 2000) and reflect;
in the opinion of external auditors, a true and fair view of the state of the EBS affairs.

Banking supervision & legal framework
EBS, registered under the Building Societies Act, Cap 489, amended by Finance Bills 1998 and 1999, is
therefore subject to the supervising and regulating authority of the Central Bank of Kenya (CBK). CBK applies
the same requirements as for Banks, since the liberalisation of financial activities has enabled the Building
Societies and other non-bank financial institutions to carry out the same business as licensed banks.
The CBK influences the operations of the society through yearly inspections, resulting in a detailed report
providing insights and recommendations on a wide range of legal, financial and operational issues. Some areas
are monitored on a much more regular basis, such as liquidity requirement.

Recommendations provided by the CBK are properly followed by the Society.

The Central Bank of Kenya has recently been closely involved in Microfinance, through a tight cooperation with
the Association of Microfinance Institutions (AMFI), which resulted in a joint proposal for a Microfinance Bill in
August 2000. However, nothing has been implemented yet and discussions are still going on. In the meantime,
the document on prudential regulations issued to all banking institutions in September 2000 is applicable to
building societies since they carry-out the same business as banks - CBK pointed out this in May 2001. This
results, among others, in the need to stick to mandatory provisioning guidelines applicable to banks and change
of external auditors every three year.

Donor supervision
International partners control is limited to the monitoring of the implementation of the projects they fund (e.g.
schedule of training sessions).




                                    www.planetfinance.org
                                                             17
                                         PlaNet Rating       Equity Building Society (EBS), Nairobi - KENYA, June 2001


        Activities and loan portfolio
                                                         b
                                                           The unique “missing middle” positioning adopted by
EBS since 1993/4 is supported by strong competitive advantages : flexibility, quick delivery and a wide range of
banking services (different savings products, credit, money transfer, cheques,…), mobile units allowing them to
get closer to the clients. EBS implemented a strong marketing policy, facilitating “customer days” within the
community in order to get people to save and borrow.
                                                           EBS activity is quickly evolving towards the
microfinance field, as the average loan at disbursement is lowering every month. The society is trying to invest
in this field while attracting “graduating” clients. The variance of amounts disbursed by EBS is thus extremely
high, from Kshs. 500 to over Kshs. 3 millions.
                                                           This middle sector clientele is able to provide good
collateral (lands, remittances, cars) or to develop regular saving habits, thus guaranteeing a better repayment
than the traditional commercial banks. However, the portfolio at risk remains higher than the best performing
NGOs in the microfinance field:above 15% for PAR more than 30 days. We estimate that 5% is due to EBS‟s
past experience with mortgage loans; the PAR above 30 days would then be around 10%.

                                                          EBS developed a dynamic and income generating
management of its assets: savings are invested with banks (short term investment, thus protecting EBS from
liquidity crisis), on lent to borrowers. In Dec 2000, the net outstanding portfolio represents only 35 % of total
assets.



                            Targets and markets
                                                         Since its repositioning in 1993/4, EBS concentrates on
the sector of the economy that is ignored by the traditional NGOs and the corporate financial service
providers („the missing middle‟). Therefore, its target clientele is not the poorest of the poor, but low-income
earners presenting some collateral : salaried workers (teachers, local authority workers and other civil servants),
tea farmers (receiving regular income through their savings account), small-scale entrepreneurs with land
property or car property, or for very small loan amounts, depositors with good track records. All borrowers must
have a savings account with EBS as a pre-condition to receive a loan.

                                                    EBS customer-focused products are a major
competitive asset and guarantee buy in from customers. Tariffs for each service are set up at the branch level
in order to take into account the competition tariffs. “Customer days” are regularly organized to get
customers/clients introduced to the society. Branches are split into physically distinct sections with a
microfinance section on the one hand and corporate section on the other hand, for clients “graduating” for
microfinance. Mobile lending units are opened once a week in remote areas to facilitate customers access
to the bank.

Market penetration techniques are based on research in potential areas in which the MFI wants to move to. To
ascertain the potentiality of a particular area, the MFI gets statistics from the Kenya Tea Development Agency
(KTDA), Teachers Service Commission (TSC) and the Local Councils among others.
Outreach has been enhanced through radio advertising, brochures and „customer days‟. The MFI has gained a
lot of confidence among its customers, resulting in increased outreach, thanks to marketing campaign to
announce its partnerships with UNDP and European Union.

Except Nairobi, EBS up-country branches are limited to one sole region, the Central Province of Kenya.

                             Ethics and Clientele
                                                             EBS is trying to develop the best tailored product, in
order to attract clientele, and … to justify the cost of the products.


                                     www.planetfinance.org
                                                              18
                                                              PlaNet Rating           Equity Building Society (EBS), Nairobi - KENYA, June 2001


EBS provides services that are tailored towards the local needs of its clientele: thus school fees loans, medical
loans, and emergency loans were added to working capital loans. However, there are no distinctive
characteristics between the different products (same interest rate, same kind of collateral). The categorization
used was more designed as a marketing instrument than for product differentiation. The main thrust being: to
make clients feel that EBS can address any of their needs and therefore capture the largest client base
possible.

Though EBS loan approval is based upon the client ability to repay, collateral is required in order to get a loan.

                                                                                                 1
Effective interest rate on loans is high (34% to 53%), due to fees . Many costs are charged on saving accounts
as well (see description of saving products), although lower than those of commercial banks .
On the basis of loans granted between June 2000 and May 2001, the average loan amount at disbursement
represents 177% of the GNP per capita 2000. This high overall positioning reflects the dual activity of EBS :
microfinance, but not only microfinance.

Getting feedback from the clients : EBS conducts special events (“customer days”) in which both existing and
potential clients interact with the management and obtain useful feedback regarding products and service
delivery. For instance, EBS was able to relax some of the collateral requirements on small loans and lower
interest rates charged on loan products as a result of such feedback. Customers have also given feedback on
group lending though the institution feels that it does not have adequate capacity to do this yet. Instead, it is
considering going into wholesale lending to institutions that are already doing group lending. Additionally, some
customers may have also dealt with other institutions and often give useful insights on what the competitors are
offering and at what price.

                                                             Competition
                                                            There are about 10 potential competitors in the market.
However, most of them are traditional NGOs and companies mainly using the group lending methodology,
targeting a different clientele. Additionally, the size of the untapped market is big enough such that there may
                                                                                  2
not appear to be any real competition for clients. National MSE Baseline Survey 1999 indicated that only 7% of
the market had been reached. Moreover, banks like Barclays and Kenya Commercial Bank are in the process of
pulling out to become corporate banks, therefore leaving the rural areas.

                                                           EBS clear and unique strategic positioning results
in a strong competitive asset. EBS attracts both “middle” clientele (former commercial banks clients
looking for more flexibility, clients graduating from pure microfinance) and small-scale entrepreneurs, thanks
to the quality of the service provided, especially the quick reaction in credit delivery.




1   standing orders, ledger fees, borrowing share and LACE (cf. loan portfolio analysis)
2   National Medium and Small Enterprises Baseline Survey 1999 (CBS, K-Rep and ICEG)
                                                        www.planetfinance.org
                                                                                         19
                                                      PlaNet Rating      Equity Building Society (EBS), Nairobi - KENYA, June 2001


     The main competitors of EBS in the industry as a whole are as follows:

                 Same                                                    Average             Effective
                         Legal    No.                                                  Avg.                         Total      Total No.
  Name of         geo                 Brief Description    Lending        Loan                Annual     Service                         Active      Date of
                        Status,    of                                              Repaymen                      Outstanding   of Loans
 Organization    area Year Est. Emp.  of Target Clients Methodology Amount           t Term
                                                                                              Interest   fee (%)
                                                                                                                  Portfolio    Disbursed
                                                                                                                                         clients   Information
                                                                        Disbursed               Rate
                  no  NGO, Co.
                        Ltd by         Micro and small    Solidarity      Ksh.                  17%                  Ksh.
   BIMAS                          31                                                12 mths              2.25%                  5,219    4,561 May 2001
                      guarantee;        entrepreneurs       groups       20,000                 (flat)            44,400,000
                       Oct 2000
                  Yes                                                     Grp-
                      Co. Ltd. by                                                                                Ksh.
                                         Low income         Group       400,000
  K-ECLOF             guarantee; 22                                                 12 mths 18.5%        1-3% 185,000,00         300     6,500 June 2001
                                           earners         lending    Individual –
                         1994                                                                                     0
                                                                         30,000
                 Yes,                                    Both group                          Group-
                      Co. Ltd. by                                                                                Ksh.
                                         Small scale         and          Ksh.                  33%                                      16,17
 K-Rep Bank            shares;                                                     34 weeks              1.5% 398,000,00          N/           May 2001
                                         enterprises      individual     30,000             Individual                                     1
                         1999                                                                                     0
                                                           lending                             -25%
                  no                                                    Between
                      Co. Ltd. by                                                                                Ksh.
                                         Low income     Group village     Ksh.
   WEDCO               liability; 58                                                12 mths     24%      3-4% 170,000,00        2450     9,000 June 2001
                                           earners         banking      15,000 –
                         1996                                                                                     0
                                                                         20,000
                  Yes                                                   Between
Pride Africa –
                         NGO,           Poorest of the      Group         Ksh.                                       Ksh.
Sunlink Credit                    30                                               16 weeks 28%          1 – 2%                 7300      3050 June 2001
                         1999                poor          lending      20,000 –                                  35,147,000
  Program
                                                                         30,000
                  Yes Co. Ltd. by      Micro and small                                          40%               Ksh.
FAULU Kenya                                                 Group         Ksh.                                                   15,00
                       shares, 105           bus.                                   12 mths (effective   4-5 % 245,126,33 54,456       Dec 2000
    Ltd.                                                   lending       40,000                                                    0
                         1999           Entrepreneurs                                              )               6
Kenya Women       yes Co. ltd by        Economically                                                              Ksh.
                                                            Group         Ksh.                                                   25,94  March
Finance Trust         guarantee; 130 active women in                                            22%            262,009,97
                                                           lending       23,478                                                    4     2001
   (KWFT)                1981          viable business                                                             1
And commercial banks such as Kenya commercial and Co-op bank, Barclays, etc. … some building societies (Family finance) and SACCOs in the
farming areas.




                                                 www.planetfinance.org
                                                                          20
                                                         PlaNet Rating       Equity Building Society (EBS), Nairobi - KENYA, June 2001


                                        Loan portfolio analysis

 As at May 2001, EBS offered seven loan products which are theoretically differentiated by the following
 characteristics :
      Maximum loan amounts
      Repayment period
      Collateral requirements
      The target groups to some extent

 However, this classification is made posterior to the credit application, regardless to the effective purpose of the
 credit (to some extent, depending on the product). We will therefore present hereunder the common
                                      1
 characteristics of EBS loan products .

Characteristics                                    Description

Credit Application                      Decision is made at the branch level for loans up to Kshs 30,000.
                                        Potential clients must hold a savings account for at least 6 months (3 month period
                                        can be tolerated regarding both the loan product and the client). When requesting a
                                        loan, potential clients meet a credit officer (credit manager or assistant credit manager
                                        in head-office) in a separate room. Several documents are filled jointly : an application
                                        form and the credit appraisal form, based on the assessed ability to repay : the
                                        monthly repayment must be lower than a percentage (5% to 25%) of the average
                                        turnover on the savings account over the “incubation” period.
                                        Loan approval is made at the branch level (considering a credit committee “by
                                        circulation”, but the Branch Manager holds the ultimate approving authority) for loans
                                        under Kshs. 30,000, with an answer the same day. Above this amount, loans have to
                                        be approved at head office by either the Finance Director or the Chief Executive.
                                        A contractual “letter of offer” is signed by both parties after the loan is approved.
Delivery methodology                    Disbursement is made by opening a loan account and posting the amount of the loan
                                        in the savings account, from which the client can withdraw money when in need of
                                        cash..
Repayments                              Monthly installments. As for disbursement, repayments are directly collected through
                                        the saving account, making the repayment process very cost-effective for the
                                        institution.
Length of time between the client‟s     For loans under the limit of approval, disbursement can be made on the same day.
application and the disbursement of the For larger and longer-term loans that require the charge of the collateral, the delay of
client‟s initial loan                   disbursement is about 3 weeks.
Annualized nominal interest rates       28% (declining balance) since 1999
                                                   32% (declining balance) in 1998
Fees                                                 Borrowing share (Kshs 202) each time a client gets a loan (does not participate in
                                                          dividends)
                                                     LACE - loan application operation fees – (up to 7% according to duration of the
                                                       loan and risk), used to compensate the higher cost of delivering small loans
                                                     Ledger fees : Kshs. 100 per month
                                                     Standing order fees : Kshs. 100 charged at each repayment
Effective annualized interest rate                 Between 34% and 53% according to loan amount, repayment period, branch…
(APR)




 1   See annex. for details on each loan product
 2   But Ksh 100 in the statutes of the Society
                                                     www.planetfinance.org
                                                                              21
                                                                      PlaNet Rating                                        Equity Building Society (EBS), Nairobi - KENYA, June 2001




Portfolio management
EBS succeeded in creating a rapid loan granting system, based on appraisal of the saving habits and the
collaterals offered by the customer. Procedures are very simple and quite well adhered to by the branch officers.
However, since EBS is evolving towards a new market (microfinance without collateral), questions are worth
asking on the evolution of this procedure.

 Loan granting : dealing with an increasing number of small borrowers, credit officers tend to speed up the
  evaluation. As was observed in a branch, for time reason, the credit committee does not always meet. Files
  just circulate between the members and are approved step by step. Procedures and internal control could be
  strengthened on the appraisal of micro-loans without collateral (for instance, to make sure that officers are
  not tempted to easily lend the excess cash).

 Delinquency management: delinquency is monitored at the branch level for arrears less than 90 days
  (reminder letters and field visits to some extent). Over 90 day arrears, delinquency is handled by the credit
  manager in the head office, for both practical convenience (lawyers are established in Nairobi) and purposes
  of centralization and control. Once the up-country branch has sent the file to the head office, there is no
  further follow-up at this level, which may result in a loss of information and involvement.

                                                                                                                                                                                                                                                         1
 Provisioning methodology: loan provisioning method in EBS follows the Central Bank of Kenya guidelines
  – which are a mandatory regulation since May 2001 for financial institutions. EBS has used these guidelines
  since 1999, before which time the society applied their own policies.


Lending Performance

The outstanding portfolio as of December 2000 is Kshs. 479,952,570, for 8,162 active borrowers, which
represents an increase of 52% compared to December 1999. Details for each loan product are provided in the
appendix.

The      variance     of   amounts                                                                                         Number of loans disbursed between June 00 and May 01,

disbursed by Equity Building                                                                                                              according to size at disbursement (Kshs)
                                                                                                                                           total number of loans disbursed : 18 243
Society      is   extremely   high,                                                     5000

resulting in a very particular
                                                            Number of loans disbursed




distribution: between June 2000 and                                                     4000
                                                                                                                                                                                              June-Dec 00 (6 months - 9349 loans disbursed)
May 2001, 50% of the loans                                                                                                                                                                    Jan-May 01 (5 months - 8894 loans disbursed
                                                                                        3000
disbursed were under Kshs. 10,000
but account for less than 6% of the                                                     2000

total amount disbursed. During this
same period, EBS granted loans                                                          1000

ranging from Kshs. 500 to over
                                                                                           0
Kshs. 3 million, resulting in an
                                                                                                                                                                                                                                                     n
                                                                                                                                            00
                                                                                                                                00
                                                                                                    0




                                                                                                                                                                                          0



                                                                                                                                                                                                         0




                                                                                                                                                                                                                                     0
                                                                                                                  0




                                                                                                                                                                           0
                                                                                                                                                             0




                                                                                                                                                                                                                       0




                                                                                                                                                                                                                                                llio
                                                                                                00




                                                                                                                                                                                      00



                                                                                                                                                                                                     00




                                                                                                                                                                                                                                 00
                                                                                                              00




                                                                                                                                                                       00
                                                                                                                                                         00




                                                                                                                                                                                                                   00




average loan size at disbursement
                                                                                                                                           00
                                                                                                                            00
                                                                                               -3




                                                                                                                                                                                                                                              mi
                                                                                                             -5




                                                                                                                                                                                     00



                                                                                                                                                                                                    00




                                                                                                                                                                                                                                 0
                                                                                                                                                                      00
                                                                                                                                                         0




                                                                                                                                                                                                                   0
                                                                                                                                      -2
                                                                                                                           -1




                                                                                                                                                                                                                                00
                                                                                                                                                     -5




                                                                                                                                                                                                               00




                                                                                                                                                                                                                                              3
                                                                                                                                                                                 -3



                                                                                                                                                                                                -5
                                                                                                                                                                  -1
                                                                                           0



                                                                                                         00




of Kshs. 43,186.
                                                                                                                                      0
                                                                                                                       00




                                                                                                                                                                                                                                          er
                                                                                                                                                                                                                            -3
                                                                                                                                                                                                              -1
                                                                                                                                                     0
                                                                                                                                     00
                                                                                                        30




                                                                                                                                                                                00



                                                                                                                                                                                               00
                                                                                                                                                                  0
                                                                                                                                                 00




                                                                                                                                                                                                                                         ov
                                                                                                                      50




                                                                                                                                                                 00
                                                                                                                                 10




                                                                                                                                                                                                                            0
                                                                                                                                                                                                          00
                                                                                                                                                                            00



                                                                                                                                                                                           00
                                                                                                                                                20




                                                                                                                                                                                                                        00
                                                                                                                                                             50




                                                                                                                                                                                                         00
                                                                                                                                                                           10



                                                                                                                                                                                          30




                                                                                                                                                                                                                       00
                                                                                                                                                                                                     50




                                                                                                                                                         Amounts disbursed
                                                                                                                                                                                                                   10




1 The guidelines stipulates as follows:
     A general provision of 1% per year is required on the total portfolio at year-end.
     For portfolio at risk less than 60 days, there is no provision required.
     For portfolio at risk for more than 90 days on-wards, specific provision is done at a rate determined by the Credit Manager every month. This rate is based on the
      managers’ judgment and experience on the probability of default of the current portfolio. A flat shilling amount is provided for each month. For the year 2001, EBS is
      providing Kshs.500,000 per month in their accounts. However, should signs of the portfolio worsening show-up, this amount can be increased.
     At the close of the accounting period, if a loan has been outstanding for a year, 100% provision will be required by the CBK.
     Provisions for suspended interests : the interest is accrued to the gross portfolio. Once the loan is defaulting for more than 90 days, the double entry is made in a
      ―suspended interest‖ account in the balance sheet (provision account), and no longer as interest revenue in the income statement. This accrual process goes on until
      the delinquency process is over, which may take more than a year.
The total amount is crosschecked for adequacy by the CBK inspectors. In the year 2000, EBS was required to top-up the total provision by Kshs. 1.7 million.
                                                           www.planetfinance.org
                                                                                         22
                                                                      PlaNet Rating          Equity Building Society (EBS), Nairobi - KENYA, June 2001


      Portfolio quality is bad, compared to international standards in microfinance, but better than banks
      operating in Kenya. The best performing bank‟s PAR is 22% ; the industry average is 40%. The average for
      mainstream NGOs MFI's is about 5% ; others are around 10 % (figures not audited by PlaNet Rating).

                              Kshs                                                                    Dec 98               Dec 99      Dec 00                         May 01
Active borrowers - end of period                                                                                958             2 753       8 162                          15870
                                                                                                                            +187,37%    +196,48%                        + 94.4%
   Cumulative number of loans disbursed over the period                                                     2 987               3 789      11 266                           8 894
   % of female clients                                                                                      25%                28%         43%                          47%
Outstanding portfolio, end of period                                                                  218 187 287         316 713 556 479 952 570                    645 355 089
                                                                                                                             +45,16%     +51,54%
   Average outstanding loan portfolio (according to monthly values)                                   237 569 476         288 646 114 426 588 462                    582 989 820
                                                                                                                             +21,50%     +47,79%
   Total amount disbursed over the period                                                                                                                            290 902 882
Average outstanding loan                                                                                 227 753               115 043                 58 803              40 665
                                                                                                                               -49,49%               -48,89%             -30,85%
                                                             1
   Average loan amount at disbursement                                                                                                                                 32 707,77
   Average loan at disbursement / GNP per capita                                                                                                                            134%
Portfolio quality
   Arrears (30 d and more) / outstanding balance end of period)                                          24.32%                12.10%              14.59%                  7.97%
   Arrears (90 d and more) / outstanding balance end of period)                                          18.57%                 9.60%              11.64%                  6.82%
                                                              2
   PAR (30 d and more) (% outstanding balance end of period)                                             37,55%                29,64%              17,55%                 15,53%
   PAR (90 d and more) (% outstanding balance end of period)                                             27,04%                24,80%              13,02%                 11,53%
   Write off amount                                                                                     921 282               891 041            283 060
   Write off rate (write off amount / Avg PF)                                                             0,39%                 0,31%               0,07%
   Write off rate (write off amount / outstanding PF)                                                     0,42%                 0,28%               0,06%

                                                #1                  #2                #3                  #4                 #5                 #6                   #7         Total
                Kshs                    Working capital          Overdraft          Devt &            School fees        Emergency           Special             Group
                                                                                   Mortgage


           Dec 00
Number of active borrowers                           3 748               2 830               202                583                186                 538                76         8 162
% of total number of borrowers                 45,92%                34,67%             2,47%               7,14%             2,28%              6,59%      0,93%
Outstanding portfolio                      260 448 898            60 358 917        52 814 052          40 239 278        25 149 549         48 890 549 15 089 729             502 990 972
% of the total outst. Portfolio                 51,78%               12,00%            10,50%               8,00%              5,00%               9,72%              3,00%
Average loan/borrower                                69               21 328           261 456              69 021            135 213              90 875            198 549        61 626
                                                    490
Arrears > 30 days                            26 565 962                        -    46 830 592                                                                                  73 396 554
% Arrears > 30 days                                  10,2%                     -           88,7%                     -                 -                   -                        14,59%

           Dec 99
Number of active borrowers                           1 738               238               176                 136                52                 288                             2 753
                                                                                                                                                               125
% of total number of borrowers                  63,13%         8,65%         6,39%         4,94%         1,89%        10,46%     4,54%
Outstanding portfolio                      170 089 356 42 522 339    32 709 492    22 896 641    16 354 746    20 532 654    21 989 689                                        327 094 917
% of the total outst. Portfolio                  52,00%              13,00%            10,00%               7,00%              5,00%               6,28%              6,72%
Average loan/borrower                             97 865             178 665           185 849             168 358            314 514              71 294            175 918
Arrears > 30 days                            22 115 480                        0    17 473 537                       0                 0                   0              0     39 589 017
% Arrears > 30 days                                  13,0%                                 53,4%                                                                                    12,1%




      1   Be careful when looking at figures at disbursement, since the variance of amounts disbursed by EBS is very high (from Ksh 500 to over 3 millions).
      2

                                       Kshs                                                           Dec 98               Dec 99               Dec 00               May 01
               PAR (30 d and more) (% average outstanding loan)                                            36,30%              33,59%              20,69%             17,19%
               PAR (90 d and more) (% average outstanding loan)                                            26,14%              28,10%              15,36%             12,76%

                                                                 www.planetfinance.org
                                                                                                 23
                                                                                                          PlaNet Rating                           Equity Building Society (EBS), Nairobi - KENYA, June 2001


*NB : the total amount does not correspond to total outstanding balance in the balance sheet, because of the
adjustments we made for suspended interest.

(see information on branches activity in the annexes)

NB2 : it is worth stressing that the distinction between the different loan products is more of a marketing tool.
The categorization of the loans granted does not appear in the loan contract and does not always correspond to
the final destination of the loan. It is more a categorization based on the number of months.

As shown in the table above, the working capital loan is the major one, both in terms of number of loans
disbursed and amount outstanding. Overdrafts are gaining importance. The school fees, emergency and special
loans remain small.
The MIS has both development loans (that is working loans but on a longer period) and previous mortgage
loans mixed, making it impossible to know newly granted development loans and defaulting mortgage loans. It
is thus impossible to appraise the evolution of this amount.

                  M o n t h ly e v o lu t io n o f t h e o u s t a n d in g p o r t f o lio ( K s h )
                                                                                                                                                                                                        E v o lu tio n o f th e p o rtfo lio a n d n b o f
  700 000 000                                                                                                                                                                                                            b o rro w e rs

  600 000 000
                                                                                                                                                                                               18 000                                                 700 000 000
  500 000 000
                                                                                                                                                                                               16 000                                                 600 000 000
                                                                                                                                                        N b o f a c ti v e b o r r o w e r s




                                                                                                                                                                                                                                                                    O u tsta n d i n g b a l a n c e
  400 000 000                                                                                                                                                                                  14 000
                                                                                                                                                                                                                                                      500 000 000
                                                                                                                                                                                               12 000
  300 000 000
                                                                                                                                                                                               10 000                                                 400 000 000

  200 000 000                                                                                                                                                                                   8 000                                                 300 000 000

  100 000 000                                                                                                                                                                                   6 000
                                                                                                                                                                                                                                                      200 000 000
                                                                                                                                                                                                4 000
                           0                                                                                                                                                                                                                          100 000 000
                                                                                                                                                                                                2 000
                           98             98           9 89
                                                              9             99                       00             00                       01                                                     0                                                 0
                  ar
                       y             ne             ec r
                                                         y             ne                   ar
                                                                                                 y             ne                   ar
                                                                                                                                         y
              u                 Ju               D ua             Ju                    u                 Ju                    u                                                                        Dec 98     Dec 99     Dec 00      M ay 01
       J   an                                  J a n
                                                                                 J   an                                  J   an




                                                                                            www.planetfinance.org
                                                                                                                                                   24
                                                              PlaNet Rating            Equity Building Society (EBS), Nairobi - KENYA, June 2001



                                                        PAR and Arrears, from March 98 to May 01

                 35,00%
                 30,00%
                 25,00%
                 20,00%
                 15,00%
                 10,00%
                  5,00%
                  0,00%
                           31/03/98 30/06/98 30/09/98 31/12/98 31/03/99 30/06/99 31/09/99 31/12/99 31/03/00 30/06/00 30/09/00 31/12/00 31/03/01 30/04/01 31/05/01


                                   % PAR > 30 days (outs PF)                 % PAR > 90 days (outs PF)                 % Arrears > 90 days (outs PF)


     Kshs                                          Dec 98                           Dec 99                          Dec 00                            May 01
     Total outstanding portfolio              229 665 143  %                   327 093 864  %                  502 990 971  %                     645 355 089        %
     Current outstanding portfolio            137 095 737 59,69%               226 020 952 69,10%              411 659 023 81,84%                 530 904 174       82,27%
     On time but rescheduled                               0,00%                            0,00%                           0,00%                                    0,00%
     PAR 1-30 days                              6 328 516  2,76%                 4 113 129  1,26%                3 082 119  0,61%                   14 236 501       2,21%
     PAR 31 – 60 D                              9 124 271  3,97%                 5 115 663  1,56%                8 657 515  1,72%                   10 536 302       1,63%
     PAR 61 – 90 D                             15 021 933  6,54%                10 732 740  3,28%               14 079 163  2,80%                   15 271 700       2,37%
     PAR 91 – 180D                             23 361 502 10,17%                20 589 633  6,29%               13 499 098  2,68%                   33 803 615       5,24%
     PAR over 181 D                            38 733 183 16,87%                60 522 800 18,50%               52 014 053 10,34%                   40 602 797       6,29%



Although the portfolio at risk is high (PAR>30 days of 15.53% as at May 2001), it is partly the result of
long term mortgage loans that were granted before EBS moved to microfinance. If we only consider the
six other products, we get the following approximate figures : PAR >30 days: 11.5% for both May 2001 and
Dec 2000 (due only to the working capital loan, and in May 2001 to group loans).

The relative quality of the microfinance products relies on the fact that borrowers are first EBS clients for
savings and other banking services.

NB : Loans to Directors. Directors can get loans, and do get loans. Their performance is presented during each
Board Meeting. Currently two Directors have loans : none of them is defaulting.




                                                     Saving Products
                                                                                                                                             1
                                                          EBS offers six savings products , which are basically
divided between savings accounts and fixed deposits. The operating rules of the savings accounts are different
in terms of minimum balance and withdrawal limits (ceiling and frequency). However, it results more in a pricing
differentiation. There is basically no restriction on accessibility of funds (provided balance is above Kshs. 400),
which is a strong competitive asset. But fees are charged for every deviation from the regular operating scheme
More financial details are shown in the F part of the report.




1   For more details, see Annex.
                                                        www.planetfinance.org
                                                                                         25
                                                                                                 PlaNet Rating                            Equity Building Society (EBS), Nairobi - KENYA, June 2001


Management of savings

                                                Savings collection                                                                                EBS emphasizes on the collection of savings and
    1 100 000 000                                                                                                                                 deposits, which relies on a very active marketing
    1 000 000 000                                                                                                                                 policy in the various up-country areas and the
      900 000 000
                                                                                                                                                  opening of new branches : Othaya in 1999, Thika in
                                                                                                                                                  2000. As a result, impressive growth rates have
      800 000 000
                                                                                                                                                  been observed over the past. The Society has thus
      700 000 000
                                                                                                                                                  reached its goal of Kshs. 1 billion deposits in March
      600 000 000                                                                                                                                 2001, whereas December 1998 figure was only
      500 000 000                                                                                                                                 Kshs. 425 million.
      400 000 000
      300 000 000                                                                                                                                 The peaks observed in October corresponds to the
                                                                                                                                                  annual tea farmers‟ bonus payment received through
      200 000 000
                                                                                                                                                  the savings accounts. It was particularly high in 1998
                    jan-98
                             apr-98




                                                        jan-99
                                                                 apr-99




                                                                                                     apr-99




                                                                                                                                         apr-01
                                      jul-98
                                               oct-98




                                                                          jul-99
                                                                                   oct-99
                                                                                            jan-00



                                                                                                              jul-00
                                                                                                                       oct-00
                                                                                                                                jan-01
                                                                                                                                                  as a result from the El Niño rains.



The amount of savings collected raises two very distinct issues. Though fixed deposits only account for about
1% of the total number of savers, they represent about 35% of total value of savings.

    Kshs.                                                                                                              31/12/98                     31/12/99             31/12/00            31/05/01
    Saving accounts
    (a) Number of savers - end of period                                                                          39,000                            66,400               70,902              87,470
    (b) Amount of savings accounts                                                                              273,573,794                       403,475,726          651,044,533         742,393,987
    (c) Average savings account balance (b)/(a)                                                                    7,015                             6,076                9,182               8,487
    Fixed deposits
    (a) Number of depositors – end of period                                                                        380                               567                  780                1,077
    (b) Amount of fixed deposits                                                                                152,044,072                       204,034,313          326,761,614         437,546,199
    (c) Average fixed deposit balance (b)/(a)                                                                     400,116                           359,849              418,925             406,264
    Total savings and deposits
    (a) Total number of savers - end of period                                                                    39,380                            66,967               71,682               88,547
    (b) Total amount of savings                                                                                 425,617,866                       607,510,039          977,806,147        1,179,940,186
    (c) Average balance of savings (b)/(a)                                                                        10,808                             9,072               13,641               13,326




                                                  Other financial activities
                                                       Aiming at offering banking services to the middle sector,
EBS developed several other financial services such as interbranch transfer, cheque clearing, foreign currency.

These services are important for EBS image, since it provides the full range of services a bank would. It is a
cost effective way to attract former banks‟ clients and keep “graduating” clients.

                                                        Non financial activities
                                                       Equity Business Society is involved in quite a number of
                                                                1
sponsoring activities in order to promote community development .
These services do not generate too many expenses and provide a good image to EBS within the community.




1   Non financial activities :
    development of business sector through training for customers in Business Start-up and Business Development
    sensitisation of farming community in better crop methods through the awarding of trophy for best farmers, along with financial rewarding (up to Kshs. 10,000)
    sponsorship of community projects, including exemption of fees for accounts held by churches (regardless of the persuasion)
    advisory services to community-based associations (Chambers of Commerce, small traders organisations…)
    organization of meetings dedicated to present and potential customers (―Customer Days‖ in order to sensitise the community to the use of financial services
    election of the best performing school, along with the temporarily employment of best students
                                                           www.planetfinance.org
                                                                                         26
                                                               PlaNet Rating            Equity Building Society (EBS), Nairobi - KENYA, June 2001


                                               Asset management

                                       Assets - Dec 1999                                                           Assets - Dec 2000



                   Fixed assets                                      Cash and due                                                        Cash and due
                                                                                                 Fixed assets
                       11%                                            from banks                                                          from banks
                                                                                                     19%
                                                                         15%                                                                 10%


                    Long term                                                                    Long term
                  investments                                           Short term             investments
                       0%                                              investments                  0%                                           Short term
                                                                           28%                                                                  investments
                                                                                                                                                    35%
                 Total net
                outstanding                                                                           Total net
                 portfolio                                                                           outstanding                  Other short
                   45%                                                 Other short                     portfolio                  term assets
                                                                       term assets                      35%                           1%
                                                                           1%




                                                           In Dec 2000, gross outstanding portfolio represents
only 50 % of total assets (net portfolio : 35%). Thanks to the savings collected, EBS developed a
dynamic and income generating management of its assets: savings are invested with banks (short term
investment, thus protecting EBS from liquidity crisis), for onlend to borrowers.

                                                1
Management of fixed assets
Fixed assets are made up of leasehold land (32%), land and building (23%), motor vehicles (6%), computers
and office equipment (39%). EBS is committed in the process of disposal of speculative assets (land and
leaseholds) related to former mortgage activities, free of any capital gains taxation.


Management of liquid assets
EBS activities, more focused on saving mobilization, structurally generate substantial cash surplus.
Moreover, annual tea bonus payments during October – November result in high amounts of cash available for
short-term investment : the Chief Accountant asks the various banks of the place for rate quotation and best
offers are selected.

                                  st
As at December 31 2000, 77% of EBS Kshs. 438 million (6 million Euros) placements were deposited in two
financial institutions: Kenya Commercial Bank for Kshs. 212 million (2.9 million Euros) and Housing Finance
                                      2
Company of Kenya Ltd for 126 million (1.7 million Euros). The total short term investments are roughly equal to
the net portfolio (Kshs 445 million).




    1The Fixed Assets amortization policy results in the following amortization rate : Leasehold improvements 12.5% / Computers and accessories 30% (25% in 1999) /
    Office Equipment Furniture and Fittings 12.5% / Motor Vehicles 25 %.
2
    Those two banks regularly offer 3-month rates significantly higher than the competitors.

                                                         www.planetfinance.org
                                                                                         27
                                                             PlaNet Rating           Equity Building Society (EBS), Nairobi - KENYA, June 2001




                                                               Funding:
                                Liabilities and Equity
                                                                                     a
                                                        EBS legal status enables to collect savings and
deposits, which represents a stable and diversified funding base. It is its main source of funds by far (78% as at
December 2000), resulting in a low cost of funds and a strong independence from donors. EBS also received
grants from MESP and UNDP, out of which only Kshs. 1.2 million from MESP were booked as at December
2000. The support from MESP (EU) and UNDP (under the MicroStart project) resulted in a much higher
confidence from the public, thus yielding growth in deposits and number of shareholders.



                                        Equity and quasi-equity


                           Liabilities and Equity (Kshs)                                          Liabilities and Equity
            1 400 000 000                                                                                 Dec 00
            1 200 000 000                                                                                3%
            1 000 000 000                                                                          12%
               800 000 000
                                                                                              3%
               600 000 000                                                                                      0%
                                                                                             4%
               400 000 000
               200 000 000
                                0                                                                                      78%
                                    1                    2                       3

                                Savings and deposits                    Loans                             Accrued expenses

                                Capital and reserves                    Retained earnings                 Net Investment subsidies




Origin of equity and quasi-equity
                                                                                                    st
The current total equity of EBS amounts to Kshs.195 million (Euro 2.65 million) as at December 31 2000. It
comes above all from the capital reserve, due to the revaluation of fixed assets in year 2000, amounting to
                                                                                     1
Kshs. 81.5 million. Paid-up equity is only made of subscribers and investment capital on the one hand, and the
                                                                    2
share premium of Ksh. 45 per share that has been received in 2000 .

                                 Kshs                                     31/12/98          31/12/99       31/12/00          % of Current Equity
                                                                                                                                 (Dec 2000)
    Subscribers and investment capital **                               30,421,510         34,061,210    50,891,470                26.2%
    Accumulated profit / (loss)                                         11,141,531         26,260,973    37,109,733                 19.1%
    Capital reserve                                                      5,422,142         5,422,142     83,347,865                 42.8%
    Among which subsidy *                                                                                  1,243,000
    Share premium**                                                              0             0         23,183,280                 11.9%
    Total Equity                                                        46 985 183         65 744 325    194 532 348                100%


1   Which entitles to the payment of dividends
2
    shares have been issued at Ksh. 50 for a nominal value of Ksh. 5 per share

                                                        www.planetfinance.org
                                                                                      28
                                                    PlaNet Rating       Equity Building Society (EBS), Nairobi - KENYA, June 2001


* A grant amounting to US$ 150,000 (Kshs. 1,243,000) is due from UNDP under MicroStart project for
Institutional Capacity Building Support.
** Last year the society raised additional capital of Kshs. 27 million (Euro 367,000) by sale of 515,184 shares to
their clients, staff and directors at a premium.

Accounts as at May 2001 include grant capital received from UNDP (Kshs. 6.8 million) for computerization,
design of procedure manuals, and training.

Equity Management
The Central Bank of Kenya (CBK) issues directives on the level of capital. The amendments made to the
Building Societies Act in 1999 result in the following requirements :
 The level of equity must support the deposit base, which results in a minimum “core capital” of 8% of the
    total deposit liabilities. This core capital, as defined by the CBK, includes paid-up share capital, non-
    repayable share premium and retained earnings (and 25% of revaluation reserves).


                                                                                                                                    st
       The CBK has in addition set up a minimum capital of Kshs. 150 million to be reached as at December 31
       2002. This definition of capital includes grant capital but excludes 75% of the revaluation reserve. This lead
                                                              st
       to a capital of Kshs. 137 million as at December 31 2000 which is still short of the minimum requirement.
                                                                               st
       However, the current profit (unaudited) of Kshs. 29 million as at May 31 2001 already matches the gap.

Cost of capital : dividends

The AGM held on April 12th 2001 has approved the first distribution of dividends of the Society, with a pay out
ratio of 15%, resulting in a Kshs 0.75 dividend per share. The high retention of profits will hence raise the capital
base, and therefore the amount of savings that may be collected.

Equity multiplier

Kshs                                                            31/12/98             31/12/99        31/12/00
             (a) Total assets, end of period                  486,679,235           709,260,095   1,259,712,814
              (b) Total equity, end of period                 46,985,183            65,744,325     194,532,348
                       (c) =(a) / (b)                               10,35              10,79           6,48




Capital planning
Necessity of boosting the capital base before the end of year 2000 resulted in offering investment shares to
members in November 2000.



                                                      Liabilities

Commercial Liabilities

None


Subsidized Liabilities
                                                       31/12/98                31/12/99           31/12/00
    (a) Subsidized Liabilities – end of period             0                  18 888 889        46 562 428
    (b) Total Assets                                  486 679 235            709 260 095       1 259 712 814
    (c) (a) as a % of (b)                                 0%                    2.66%              3.70%




                                                www.planetfinance.org
                                                                            29
                                                        PlaNet Rating            Equity Building Society (EBS), Nairobi - KENYA, June 2001


Details on current subsidized liabilities :

             Creditor Micro-Enterprise Support Programme
                      (Joint Initiative of the Government of Kenya and the European Union)
                Date May 2000
      Total Amount 50,000,000
            Currency Kenyan shilling
           Nominal 6% flat (equivalent to 11% declining). Though the pricing has been made in consideration of fixed
      Interest Rate deposit rates, it is formally a loan.
      Maturity Date 2 years after the first disbursement (May 2000)
        Other useful Disbursed in 5 tranches – 3 month grace period
         information Credit fund for on-lending under EBS “Special loans” product.
                     A 12-month line of credit amounting to Kshs. 200,000, at 6% flat rate, had already been granted by
                     MESP and disbursed in August 1999. Proper repayment has been observed.


Cost of borrowed funds
                                                                                           31/12/98       31/12/99       31/12/00      31/05/01
(a) Interest and Fee Expense paid on borrowed funds                                                   0      329,293      1,440,759     1,415,178
(b) Borrowed Funds (Subsidized and commercial loans)                                                  0   18,888,889     46,562,428    34,475,594
      (c)          (a) as a percentage of (b)                                                N/a               1.7%           3.1%          4.1%



                                                               Savings
                                                       Customer deposits comprise of fixed term deposits
received from individuals and corporate organizations at varying rate of interest plus customers saving
accounts. Although fixed deposits represent an average of only 1% of the total number of accounts, they
                                                                      1
contribute to an average of 35% of the total amount payable to clients .


Cost of savings
                                                                                       31/12/98       31/12/99         31/12/00       31/05/01
(a) Interest paid on savings and deposits                                            50,168,169        52,039,398       65,411,506    40,367,352
(b) Total savings and deposits                                                      425,147,867       607,510,039      977,806,147 1,179,940,186
      (c)           (a) as a percentage of (b)                                           11.8%              8.6%             6.8%         3.42%

Nominal annual interest rates served on savings accounts are between 7%-8%, whereas those on fixed
                                                                             2
deposits follow the slightly higher 90-day T-Bills rates (currently 9-10% ). Interest being computed on the
minimum balance during the month (with the application of a minimum interest earning balance of Kshs. 5,000),
effective interest paid on savings is lower than the nominal 7-8% rate. it results in low cost of savings, which
the institution expect to decrease further and settle around 3%.




1   For more details, cf. A area
2   Average T-Bills rates for 1999 and 2000 were respectively 18% and 12%
                                                         www.planetfinance.org
                                                                                  30
                                                      PlaNet Rating     Equity Building Society (EBS), Nairobi - KENYA, June 2001


             Efficiency and Profitability
                                                                        b
                                                         After adjustments (which are very few), EBS is still
profitable and achieves both operational and financial self-sufficiency. Profitability has greatly improved over the
past year, above all thanks to the computerization of the operations. Efficiency still needs more improvement
given the changes taking place in human resources and growth of the portfolio.

                                                  Adjustments
Very few adjustments were booked, mainly accounting adjustments. The final adjusted profit is higher than the
unadjusted one, as the inflation effect on fixed assets generated a shadow profit.

Accounting adjustments were booked for suspended interest and interest paid on savings. These adjustments
were directly made in the financial statements. That is why the figures we publish here are different from the one
in the audited statements (but net profit remains the same).
   Suspended interest : EBS accrues interest revenue. Up to 90 days late, interest revenue is accrued in the outstanding
    amount (balance sheet) and the income revenue (income statement). After 90 days late, it keeps on accruing in the
    outstanding amount but the double entry is made in a specific balance sheet provision (“suspended interest”). Therefore,
    the outstanding portfolio is overstated. Our adjustment consisted in cancelling the “suspended interest” account and
    diminishing the “outstanding balance” with the corresponding amount.
   Interest paid on savings (“interest forfeiture”) : interests are paid on savings only at the end of the year, but accrued on a
    monthly basis. In 1998 and 1999, interest expenses have been accrued during the year at a theoretical rate, as an
    operating expenses, and then adjusted by EBS at the end of the year according to the interest which has been actually
    paid, as an operating income if the rate decreased. Our accounting adjustment consisted in writing the right amount as
    interest expenses and cancelling the corresponding operating income. In 2000, interest on savings have been adjusted
    every month, therefore we booked no adjustments.

The following adjustments do not appear in the financial statements, they were made only on the final net profit.

 Adjustments for inflation :with effect to equity and assets in                                                    98            99          00
                                                                 Inflation rate                                     9%           10%         11%
  1998, 1999 and 2000.                                           Kshs/Euro                                          68.547         76.8001   65.342
 Adjustment for loan loss provision : none
 Adjustments for costs of funds : none, since they were not material.

                   Equity Building Society - Kshs                                 Dec 98         Dec 99        Dec 00
Adjusting for the effect of inflation = (a - b) X c                                  -344 283    -1 310 592     -3 407 533
  a. Average of equity                                                             23 859 395    56 364 754    130 138 336
  b. Average of fixed assets                                                       27 684 766    69 470 675    161 115 911
  c. Inflation rate                                                                    9,00%        10,00%         11,00%
Adjusting for the cost of funds                                                             0             0              0
Adjusting in-kind donation                                                                  0             0              0
Adjusting the provision                                                                     0             0              0
Adjusting for operating subsidies                                                            0             0                 0
Other adjustments                                                                            0             0                 0


    Net adjusted profit/loss before subsidies and before tax                       18 229 527    26 432 335      37 061 327
    Net profit/loss before subsidies and before tax                                17 885 244    25 121 743      33 653 794

    Adjusted extraordinary profit/Loss                                                       0             0                 0
    Non adjusted extraordinary profit/Loss                                                   0             0                 0

    Adjusted net profit/loss (before tax)                                          18 229 527    26 432 335      37 061 327
    Non adjusted net profit/loss (before tax)                                      17 885 244    25 121 743      33 653 794


    Adjusted net profit/loss (after tax)                                           12 095 846    16 430 034      20 933 482
    Non adjusted net profit/loss (after tax)                                       11 751 562    15 119 442      17 525 948
                                                www.planetfinance.org
                                                                         31
                                                  PlaNet Rating      Equity Building Society (EBS), Nairobi - KENYA, June 2001




                                                    Efficiency

Efficiency                                                                 Dec 98               Dec 99              Dec 00
Administrative efficiency
Adjusted administrative expenses / Average turnover of gross
portfolio and savings                                                      16,57%              18,18%              17,31%
Operating efficiency
Adjusted operating expenses / Average turnover of gross portfolio
and savings                                                                38,38%              28,55%              30,95%
Adjusted staff expenses in % of adjusted total administrative
expenses                                                                   41,78%              37,91%              36,71%
Number of active borrowers per paid staff- end of period                    10,41               25,26               69,76
Number of active borrowers per loan officer - end of period                  73,7               161,9               429,6
Outstanding loan amount per loan officer - end of period                   16 783 637            18 630 209          25 260 662
Number of active borrowers per decentralised units - end of period           120                 306                 816


Computerization of EBS banking operations occurred over the last 6 months of 2000, improving greatly work
efficiency. More improvements should be seen in 2001 ratios.
 Staff efficiency : staff have been able to perform tasks without strain, and faster. Indeed the number of
    customers served per day has increased tremendously. A customer used to be served in 30 minutes but now
    this is done in less than 10 minutes. Accounting staff took too long to balance and reconcile records, which
    are now automatically done by the system by the press of a button.
 Administrative and operating efficiencies : since computerization is quite recent, improvements do not reflect
    yet in year 2000 ratio. However, it is worth noting that EBS was able to absorb a strong increase in salary
    expenses (+44%) and amortization (Kshs. 16.3 million, +148%, mainly as a result of computerization)
    thanks to the growth of the (computerized) portfolio - average gross portfolio increased by 48% in 2000.
    Administrative efficiency remains stable over the year 2000 ; The high difference between administrative and
    operating efficiency is due to interest paid on savings and, specifically for 2000, resulting to the high amount
    of adjustment on loan loss provision.

Evolution of efficiency.
Efficiency should improve greatly in 2001, given the new asset - the MIS. Some factors should still be closely
monitored though:
 Evolution towards smaller and smaller loan sizes. How cost effective is it ?
 Speeding up the loan granting process : EBS should be aware that efficiency should not be increased at the
    expenses of quality.
 Increasing salaries and hiring qualified people will lead to a consecutive increase in operating costs.
 Plans to open new branches. The computerized system is now a lot more expensive. Opening new branches
    will be more complex than in the past.




                                             www.planetfinance.org
                                                                      32
                                                PlaNet Rating       Equity Building Society (EBS), Nairobi - KENYA, June 2001


                                                Profitability



Profitability                                                              Dec 98                Dec 99                Dec 00
ROA (Return on Assets)                                                      7,34%                 4,20%                3,42%
ROE (Return on Equity)                                                      49,3%                 26,8%                13,5%
AROA (Adjusted Return on Assets)                                            7,5%                  4,4%                  3,8%
AROE (Adjusted Return on Equity)                                            50,7%                 29,1%                16,1%
Operating self-sufficiency                                                 116,0%                124,2%                119,2%
Financial self-sufficiency                                                 116,4%                125,8%                121,6%

ROA without the revaluation of assets                                      7,34%                  4,20%                 3,57%
ROE without the revaluation of assets                                      49,3%                  26,8%                 19,6%
AROA without the revaluation ot assets                                     7,5%                   4,4%                   3,9%
AROE without the revaluation ot assets                                     50,7%                  29,1%                 23,4%


EBS has been profitable over the last three years, each year turning in more profits in Shilling terms. The asset
base has grown tremendously thus adversely affecting the return on assets, even when excluding the
revaluation.

EBS has been able to sustain profitability and financial self-sufficiency over the past three accounting periods.

 Kshs                                          1998                             1999                             2000
 Interest Income                         81,114,879 (63%)                 86,650,742 (56%)                 132,267,698 (63%)
 Other operating Income                  48,310,436 (37%)                 66,800,189 (54%)                 76,544,142 (37%)




                                            www.planetfinance.org
                                                                     33
    PlaNet Rating       Equity Building Society (EBS), Nairobi - KENYA, June 2001




     Annexes




www.planetfinance.org
                         34
                                        PlaNet Rating       Equity Building Society (EBS), Nairobi - KENYA, June 2001


                           Financial statements

Note on the information
Financial data provided in this report has been audited for the past three years (1998, 1999, 2000) and reflect;
in the opinion of external auditors, a true and fair view of the state of the EBS affairs.

Accounting adjustments were directly booked for interest forfeiture on savings and suspended interests on
loans. That is why the figures we present here are different from the ones in EBS audited financial statements
(see E area).


Notes on the balance sheet :

    1   2000 : Treasury bills (10.4%) : 100 million ; Deposits with Banks (max: 90 days) : 338 millions (around
        10 days). ; 2000 is the first year EBS purchased T Bills
    2   The outstanding net balance is overstated : it includes outstanding amounts + accrued interest (even on
        late payments) + some ledger and standing order fees before they are paid. Adjustments on EBS
        figures have been passed for suspended interest. Cf E area.
    3   Included in the account # 1200
    4   2000: interest receivables on deposits ; other debtors and prepayments
    5   Leasehold land, land and buildings, Computers
    6   See F area
    7   Interest payable on deposits + other creditors and accruals+ for 2000 : dividends payable
    8   Microstart investment subsidy (150 000 USD)

Notes on the income statement

    1  Accrued interests are included in the interest income. The MIS does not allow to differentiate actual
       interest income and interests accrued on current and loans late up to 3 months
    2 Ledger fees, Standing Order fees on loan accounts are not differentiated from the one gained on the
       savings accounts. They appear in " other operating income".
    3 Interest earned on Time Deposits + T Bills
    4 Interest paid on MESP loan.
    5 Adjustments have been made for interest forfeiture. (see E area)
    6 Interest on savings are paid at the end of each year, but accrued on a monthly basis. That is why this
       account is equal to 0.
    7 Remittances : receiving money sent from various sources (receiving from the school money to pay its
       staff salaries and paying the salaries directly on staff‟s accounts)
    8 Services charges & fees for banking services provided (Ledger fees ; Internal and External Standing
       Orders income ; Clearing cheques ; Passbooks; etc.)
    9 Photocopies, rent income, miscellaneous
    10 Recovery on loans written off
    11 Corporate tax is 33% but late payments and penalties




                                    www.planetfinance.org
                                                             35
                                                      PlaNet Rating       Equity Building Society (EBS), Nairobi - KENYA, June 2001



                                                                             Dec 98           Dec 99        Evol.       Dec 00          Evol
                     Equity Building Society                      notes
                              Kshs                                               P2             P1                        P0

Assets                                                                      486 679 235       709 260 095 +45,73%     1 259 712 814 +77,61%
Cash and due from banks                                                         53 994 848    117 820 777 +118,21%     120 909 879 +2,62%
    Cash in vault, Petty cash, checking/current account                                                                120 909 879
    Reserves in Central Bank
Short term investments (banks, credit institutions) - net value       1     174 483 366       210 845 068 +20,84%      438 003 241 +107,74%
Total outstanding portfolio - gross value                             2     218 187 287       316 713 556 +45,16%      479 952 570 +51,54%
         Current portfolio                                                  137 095 737       226 020 952 +64,86%      411 659 023 +82,13%
         Portfolio at risk (>1 day)                                   2         81 091 550     90 692 604 +11,84%       68 293 547 -24,70%
         Rescheduled or Refinanced portfolio
(Loan loss reserve)                                                         -23 367 588       -28 481 284 +21,88%       -34 128 410 +19,83%
* info : loans written off                                                        921 282        891 041    -3,28%         283 060 -68,23%
Accrued interest on outstanding portfolio                             3
Other receivables ST                                                  4          8 136 507      8 665 444   +6,50%      16 440 246 +89,72%
Long term Investments - net value                                                                                                0
Fixed assets - net value                                              5         55 244 815     83 696 534 +51,50%      238 535 288 +185,00%
Other assets LT
Liabities and Equity                                                        486 679 235       709 260 095 +45,73%     1 259 712 814 +77,61%

Liabilities                                                                 439 694 052       643 515 770 +46,36%     1 065 180 466 +65,53%
a. Due to customers                                                         425 147 867       607 510 039 +42,89%       977 806 147 +60,95%
Savings accounts: forced
Savings accounts: voluntary                                                 425 147 867       607 510 039 +42,89%      977 806 147 +60,95%
         Voluntary time deposits                                            152 044 073       204 034 313 +34,19%      326 761 614 +60,15%
         Voluntary demand deposits                                          273 103 794       403 475 726 +47,74%      651 044 533 +61,36%
Accrued interest on savings
b. Due to central bank, banks, credit institutions                                       0     18 888 889               46 562 428 +146,51%
Commercial loans                                                                         0             0                         0
Concessional Loans                                                    6                  0     18 888 889               46 562 428 +146,51%
         Short term                                                                      0     18 888 889                             +146,51%
         Medium and long term                                                            0             0                46 562 428
Accrued interest on loans
c. Other liabilities                                                            14 546 185     17 116 842 +17,67%       40 811 891 +138,43%
Accrued expenses to employees
Taxes payable                                                                         1 893     2 711 741                2 006 168
Other accrued expenses                                                7         14 544 292     14 405 101   -0,96%      38 805 723 +169,39%

Total Equity                                                                    46 985 183     65 744 325 +39,93%      194 532 348 +195,89%
Equity                                                                          46 985 183     65 744 325 +39,93%      193 289 348 +194,00%
Paid-in equity from shareholders or members                                     30 421 510     34 061 210 +11,96%       74 074 750 +117,48%
Reserves                                                                         5 422 142      5 422 142               82 104 865 +1414%

Retained earnings, current years                                                11 751 562     15 119 442 +28,66%       10 848 760 -28,25%
Retained earnings, previous years                                                 -610 031     11 141 531 -1926,39%     26 260 973 +135,70%
Quasi Equity                                                                             0             0                 1 243 000

Donations for credit fund                                                                0             0                         0

Investment subsidies - net value                                      8                  0             0                 1 243 000
    *Info : current year investment subsidy - gross value*

Very soft loans
Donations to be justified (not yet used)



                                                 www.planetfinance.org
                                                                           36
                                                  PlaNet Rating       Equity Building Society (EBS), Nairobi - KENYA, June 2001



                  Equity Building Society                 notes     Dec 98         Dec 99        Evol.          Dec 00          Evol.
                            Kshs                                      P2             P1                           P0
4000 a- Interest and similar income                                 81 038 290     86 650 742     +6,93%        132 267 698    +52,64%
4010   Interest received on loans                             1     65 775 997     70 716 158     +7,51%        104 982 660    +48,46%
4020   Other fees and commissions received on loans           2na                Na                        na
4030   Accrued interest on loans                              1
4040   Penalty income
4050   Other interest revenues (investments)                  3     15 262 293     15 934 584     +4,40%         27 285 038     +71,23%
5000   b- Interest and similar expenses                             50 091 580     27 610 378    -44,88%         66 852 265    +142,13%
5010   Interest paid on borrowings (banks)                    4              0        329 293                     1 440 759    +337,53%
5014   Fees and commission paid on borrowings                                0
5020   Interest paid on client savings                        5     50 091 580     27 281 085    -45,54%         65 411 506    +139,77%
5030   Accrued interests on savings and borrowings            6              0              0                             0
       c- Gross financial profit/loss [a-b]                         30 946 710     59 040 364   +90,78%          65 415 433    +10,80%
5100 d- Loan loss provisions and write-offs                         13 245 797     10 000 000    -24,50%         10 379 744      +3,80%
5110 Loan loss provision                                            13 245 797     10 000 000    -24,50%         10 379 744      +3,80%
     Bad loans written off (not previously provided
5120 for)                                                                    0
       e- Net financial profit/(loss) [c-d]                         17 700 913     49 040 364   +177,05%         55 035 689    +12,23%
4100 f-Other operating income                                       48 310 436     41 978 276    -13,11%         76 536 142    +82,32%
     Income from remittances                                  7                        36,5%                         38,7%      +0,00%
     Income from banking services                             8                          60%                           59%      +0,00%
     Other                                                    9                         3,5%                          2,0%      +0,00%
5200 g-Operating expenses                                           48 126 105     65 960 497   +37,06%          97 926 037    +48,46%
5210 Administrative expenses                                        48 126 105     65 960 497   +37,06%          97 926 037    +48,46%
5211 Personnel expenses                                             20 109 016     25 006 955   +24,36%          35 948 039    +43,75%
         Estimates Management Team (Heads of
      Depts + Branch Managers)                                            47%            48%                           46%
         % of personnel costs                                        9 540 000     11 952 000                    16 494 000
         Other
         Provisions for personnel expenses                                   0              0                             0
5215 Other Administrative costs                                     28 017 089     40 953 542    +46,17%         61 977 998     +51,34%
         including training costs                                    1 277 177      2 711 392   +112,30%          3 399 467     +25,38%
         including auditing and consulting costs                       689 269      1 090 784    +58,25%          2 724 213    +149,75%
         Inc depreciation and amortization                           4 841 936      6 571 727    +35,73%         16 284 479    +147,80%
5220 Other operating expenses                                                                                             0
5250 Other provisions (operations)
       i- Net operating profit/(loss) [e+f-g]                       17 885 244     25 058 143   +40,11%          33 645 794    +34,27%
4300 j- Non operating income                                 10                        63 600                          8 000
5300 k- Non operating expenses
       l- Non operating Profit / (Loss) [j-k]                                0         63 600                          8 000
       m- Net Profit/Loss prior to donations,                                                   +40,46%                        +33,96%
       before tax [i+l]                                             17 885 244     25 121 743                    33 653 794
4410 Operating subsidies                                                                                                  0
4420 Investment subsidies amortization                                                                                    0
     n-    Net     profit/(loss)     before         tax                                         +40,46%                        +33,96%
     [m+4410+4420]                                                  17 885 244     25 121 743                    33 653 794
5400 o- Income tax                                                   6 133 682     10 002 301   +63,07%         16 127 845     +61,24%
     Effective tax rate [n/m]                                11     34,29%         39,82%                       47,92%         +20,36%
       p- Net profit/(loss) after tax [n-o]                         11 751 562     15 119 442   +28,66%          17 525 948    +15,92%




                                              www.planetfinance.org
                                                                       37
                                                        PlaNet Rating       Equity Building Society (EBS), Nairobi - KENYA, June 2001



                           Equity Building Society                       notes     Dec 98          Dec 99       Evol.       Dec 00            Evol
                                    Euro                                             P2             P1            0           P0               0
       Assets                                                                        6 715 915     9 656 442 +45,73%        17 109 824      +77,61%

1000   Cash and due from banks                                                         745 100     1 604 108 +118,21%        1 642 237      +2,62%
1010       Cash in vault, Petty cash, checking/current account                                0             0                1 642 237
1050       Reserves in Central Bank                                                           0             0   +0,00%                  0
1100   Short term investments (banks, credit institutions) - net value       1       2 407 778     2 870 616 +20,84%         5 949 101      +107,74%
1200   Total outstanding portfolio - gross value                             2       3 010 869     4 311 995 +45,16%         6 518 870      +51,54%
1211            Current portfolio                                                    1 891 848     3 077 233 +64,86%         5 591 285      +82,13%
1212            Portfolio at risk (>0 day)                                   2       1 119 020     1 234 763 +11,84%           927 585      -24,70%
1213            Rescheduled or Refinanced portfolio                                           0             0   +0,00%                  0
1300   (Loan loss reserve)                                                            -322 460      -387 767 +21,88%          -463 543      +19,83%
       * info : loans written off                                                         12 713      12 131    -3,28%             3 845    -68,23%
1400   Accrued interest on outstanding portfolio                             3                0             0                  0
1500   Other receivables ST                                                  4         112 279       117 978    +6,50%         223 297      +89,72%
1600   Long term Investments - net value                                                      0             0   +0,00%                  0
1700   Fixed assets - net value                                              5         762 349     1 139 513 +51,50%         3 239 863      +185,00%
1800   Other assets LT                                                                        0             0   +0,00%                  0
       Liabities and Equity                                                          6 715 915     9 656 442 +45,73%        17 109 824      +77,61%

       Liabilities                                                                   6 067 544     8 761 346 +46,36%        14 467 623      +65,53%
2200   a. Due to customers                                                           5 866 815     8 271 135 +42,89%        13 280 877      +60,95%
2210   Savings accounts: forced                                                               0             0                           0
2220   Savings accounts: voluntary                                                   5 866 815     8 271 135 +42,89%        13 280 877      +60,95%
2221            Voluntary time deposits                                              2 098 127     2 777 889 +34,19%         4 438 181      +60,15%
2222            Voluntary demand deposits                                            3 768 687     5 493 246 +47,74%         8 842 696      +61,36%
2240   Accrued interest on savings                                                            0             0                           0
2300   b. Due to central bank, banks, credit institutions                                     0      257 169                   632 426      +146,51%
2310   Commercial loans                                                                       0             0                           0
2320   Concessional Loans                                                    6                0      257 169                   632 426      +146,51%
2321            Short term                                                                    0      257 169                            0   +146,51%
2322            Medium and long term                                                          0             0                  632 426
2340   Accrued interest on loans                                                              0             0                           0
2500   c. Other liabilities                                                            200 730       233 043 +17,67%           554 320      +138,43%
2510   Accrued expenses to employees                                                          0             0                           0
2550   Taxes payable                                                                         26       36 920                    27 248      -26,02%
2560   Other accrued expenses                                                7         200 703       196 123    -0,96%         527 072      +169,39%
       Total Equity                                                                    648 371       895 097 +39,93%         2 642 201      +195,89%
3100   Equity                                                                          648 371       895 097 +39,93%         2 625 318      +194,00%
3110   Paid-in equity from shareholders or members                                     419 801       463 737 +11,96%         1 006 107 +117,48%
3120   Reserves                                                                           74 823      73 821 +0,00%          1 115 175 +1414,25%
3131   Retained earnings, current years                                                162 165       205 848 +28,66%           147 351  -28,25%
3133   Retained earnings, previous years                                                  -8 418     151 690 -1926,39%         356 685      +135,70%
3300   Quasi Equity                                                                           0             0                   16 883


3310   Donations for credit fund                                                              0             0                           0
3330   Investment subsidies - net value                                      8                0             0                   16 883
3350                                                                                          0             0   +0,00%                  0   +0,00%
       Very soft loans
3360                                                                                          0             0   +0,00%                  0   +0,00%
       Donations to be justified (not yet used)




                                                   www.planetfinance.org
                                                                             38
                                                       PlaNet Rating      Equity Building Society (EBS), Nairobi - KENYA, June 2001



                       Equity Building Society                notes       Dec 98              Dec 99         Evol.             Dec 00         Evol.

                                  Euro                                      P2                  P1             0                 P0            0

4000   a- Interest and similar income                                      1 118 285           1 179 734           +7%          1 796 502       +53%
4010   Interest received on loans                                  1         907 674             962 787           +8%          1 425 908       +48%
4020   Other fees and commissions received on loans                2 na                  na                               na
4030   Accrued interest on loans                                   1                 0                   0                                0
4040   Penalty income                                                                0                   0         +0%                    0        +0%
4050   Other interest revenues (investments)                       3         210 612             216 946           +4%            370 594       +71%
5000   b- Interest and similar expenses                                      691 237             375 910           -45%           908 009      +142%
5010   Interest paid on borrowings (banks)                         4               0               4 483                           19 569      +338%
5014   Fees and commission paid on borrowings                                        0                   0         +0%                    0        +0%
5020   Interest paid on client savings                             5         691 237             371 427           -46%           888 440      +140%
5030   Accrued interests on savings and borrowings                 6                 0                   0         +0%                    0        +0%
       c- Gross financial profit/loss [a-b]                                  427 048             803 823       +91%               888 493       +11%
5100   d- Loan loss provisions and write-offs                                182 785             136 148           -25%           140 981          +4%
5110   Loan loss provision                                                   182 785             136 148           -25%           140 981          +4%
5120   Bad loans written off (not previously provided for)                           0                   0                                0
       e- Net financial profit/(loss) [c-d]                                  244 263             667 675       +177%              747 512       +12%
4100   f-Other operating income                                              666 658             571 526           -13%         1 039 538       +82%
       Income from remittances                                     6                 0               0,5%          +0%                0,5%         +0%
       Income from banking services                                7                 0                 1%          +0%                  1%         +0%
       Other                                                       8                 0               0,0%          +0%                0,0%         +0%
5200   g-Operating expenses                                                  664 115             898 040       +37%             1 330 063       +48%
5210   Administrative expenses                                               664 115             898 040       +37%             1 330 063       +48%
5211   Personnel expenses                                                    277 494             340 465       +24%               488 258       +44%
           Estimates Management Team (Heads of Depts +                                                             +0%                             +0%
        Branch Managers)                                                           1%                  1%                               1%
           % of personnel costs                                              131 647             162 724           +0%            224 027          +0%
           Other                                                                 0,00%               0,00%         +0%                0,00%        +0%
           Provisions for personnel expenses                                         0                   0         +0%                    0        +0%
5215   Other Administrative costs                                            386 621             557 575       +46%               841 805       +51%
           including training costs                                             17 624            36 915       +112%               46 173       +25%
           including auditing and consulting costs                               9 512            14 851       +58%                37 001      +150%
           Inc depreciation and amortization                                    66 816            89 473       +36%               221 181      +148%
5220   Other operating expenses                                                      0                   0                                0        +0%
5250   Other provisions (operations)                                                 0                   0                                0        +0%
       i- Net operating profit/(loss) [e+f-g]                                246 807             341 162       +40%               456 988       +34%
4300   j- Non operating income                                     9                 0                 866         +0%                  109        +0%
5300   k- Non operating expenses                                                     0                   0         +0%                    0        +0%
       l- Non operating Profit / (Loss) [j-k]                                        0                 866         +0%                  109        +0%
       m- Net Profit/Loss prior to donations, before tax                                                       +40%                             +34%
       [i+l]                                                                 246 807             342 028                          457 097
4410   Operating subsidies                                                           0                   0         +0%                    0        +0%
4420   Investment subsidies amortization                                             0                   0         +0%                    0        +0%
       n- Net profit/(loss) before tax [m+4410+4420]                         246 807             342 028       +40%               457 097       +34%

5400   o- Income tax                                                          84 642             136 179       +63%               219 054       +61%
       Effective tax rate [n/m]                                   10      34,29%              39,82%     +0%                   47,92%           +20%

       p- Net profit/(loss) after tax [n-o]                                  162 165             205 848       +29%               238 043       +16%




                                                  www.planetfinance.org
                                                                           39
                                                    PlaNet Rating       Equity Building Society (EBS), Nairobi - KENYA, June 2001




                                     Details of loan products



Loan 1 : Working Capital Loan
Clients               Contractors who improve or set up new businesses
Methodology and terms        6-month incubation period
                             Collateral required : land, fixed deposit (no simple deposits), T-Bills
                             Annualized interest rate : 28% declining
                             Administration fees : from 3 % to 0% (first loan to 6th loan)
                             Term: from 6-8 months for the first loan ; up to 12 months for follow on loans
                             Monthly repayments
APR                   Between 34% and 53%
Loan size at                    Minimum amount Kshs. 3,000
disbursement                    Maximum amount Kshs. 5,000,000
Appreciation on the             EBS main product is of great help to entrepreneurs to whom EBS lends the amount of the order during
product                         the payment period. However, rather high rate of arrears has to be monitored closely, even if the
                                Society holds collateral, since it is not charged for loans under Kshs. 30,000.




                  Working capital loan – Kshs                                 Dec 98                  Dec 99                    Dec 00

    Annualized nominal interest rate                                          32,00%                  28,00%                    28,00%
    Global effective interest rate                                                                  34% to 53%                34% to 53%
    Average loan amount at disbursement                                         n/a                     n/a                       n/a
Active clients
    Total number of active clients- end of period                              756                     1,738                     3,748
    Cumulative number of loans disbursed over the period                       2268                    1024                      1858

    Present % of women                                                         39%                     18%                       24%
Outstanding portfolio

    Outstanding portfolio, end of period                                 169,952,206                170,089,356               260,448,898
    Average monthly outstanding portfolio                                       n/a                     n/a                       n/a
    % of total net outstanding portfolio                                       74%                     52%                       51%
    Average outstanding loan per client                                       224,805                 97,865                    69,490
Portfolio quality                                                   Amount        %          Amount          %         Amount      %
    Current outstanding portfolio                                   135,912,515         79.97 147,086,600        86.48% 232,257,579         89.18
    On time but rescheduled                                                     0        0.00           0          0.00           0          0.00
    Arrears 1-30 days                                                 3,841,372          2.26     887,274          0.52    1,625,357         0.62
    Arrears 31 – 60 D                                                 5,013,506          2.95    2,090,609         1.23    4,350,018         1.67
    Arrears 61 – 90 D                                                 8,189,945          4.82    6,096,000         3.58 10,508,296           4.03
    Arrears 91 – 180D                                                13,042,293          7.67 10,197,855           6.00    1,665,625         0.64
    Arrears above 180 days                                            3,952,575          2.33    3,731,018         2.19 10,042,023           3.86
    Write off amount                                                 24,391,811                 11,658,793                14,291,703




                                                www.planetfinance.org
                                                                         40
                                                     PlaNet Rating      Equity Building Society (EBS), Nairobi - KENYA, June 2001


Loan 2 : Overdraft/Revolving fund
Clients               Business people from various industries, especially suppliers (stationary, cereals, firewood…)
Methodology and terms        Repayment period varies from three to six months
                             Application on the basis of LPO‟s (credit limited to the order)
                             Collateral required : log book, quoted shares, land, fixed deposits
                             Incubation period of not less than six months
                             The conditions for repeat loan are the same
APR                   Between 34% and 53%
Loan size at                    Minimum amount Kshs. 3,000
disbursement                    Maximum amount Kshs. 5,000,000
Appreciation on the             Equity Building Society funds the payment period. Very popular with the business community, this
product                         product enables the institution to attract new clients. Low risk of contaminated portfolio, because clients
                                pay back their loan after the LPO has been paid.




           Overdraft/Revolving fund – Kshs                            Dec 98                      Dec 99                      Dec 00

    Annualized nominal interest rate                                  32,00%                      28,00%                      28,00%
    Global effective interest rate                                                              34% to 53%                  34% to 53%
    Average loan amount at disbursement                                 n/a                         n/a                         n/a
Active clients
    Total number of active clients- end of period                       95                          238                        2,830
    Cumulative number of loans disbursed over the period                135                         365                        4245

    Present % of women                                                 18%                         22%                         26%
Outstanding portfolio

    Outstanding portfolio, end of period                             25,263,166                 42,522,339                  60,358,917
    Average monthly outstanding portfolio                               n/a                         n/a                         n/a
    % of total net outstanding portfolio                               11%                         13%                         12%
    Average outstanding loan per client                               265,928                     178,665                     21,328
Portfolio quality                                           Amount          %           Amount        %             Amount          %
    Current outstanding portfolio                              25,263,166         100.00   44,740,563        100.00    60,358,917        100.00
    On time but rescheduled                                             0           0.00            0          0.00             0          0.00
    Arrears 1-30 days                                                   0           0.00            0          0.00             0          0.00
    Arrears 31 – 60 D                                                   0           0.00            0          0.00             0          0.00
    Arrears 61 – 90 D                                                   0           0.00            0          0.00             0          0.00
    Arrears 91 – 180D                                                   0           0.00            0          0.00             0          0.00
    Arrears above 180 days                                              0           0.00            0          0.00             0          0.00
    Write off amount                                                    0                           0                           0




                                                www.planetfinance.org
                                                                         41
                                                    PlaNet Rating       Equity Building Society (EBS), Nairobi - KENYA, June 2001


Loan 3 : Development and mortgage Loan
History of the product Previously mortgage loans (to facilitate purchase of houses), but now other long term loans
Clients                Business people from various industries
Methodology and terms          6-month incubation period
                               Collateral required : land, fixed deposit (no simple deposits), T-Bills
                               Annualized interest rate : 28% declining
                               Administration fees : from 3 % to 0% (first loan to 6th loan)
                               Repayment period : 3 to 5 years
                               Monthly repayments
APR                    Between 34% and 53%
Loan size at                    Minimum amount Kshs. 50,000
disbursement                    Maximum amount Kshs. 5,000,000
Appreciation on the             Similar to the working capital loan product, except the repayment period.
product                         Includes former mortgage loans, resulting in a poor portfolio quality.




        Development and mortgage loans – Kshs                              Dec 98                       Dec 99                   Dec 00

    Annualized nominal interest rate                                       32,00%                       28,00%                   28,00%
    Global effective interest rate                                                                    34% to 53%               34% to 53%
    Average loan amount at disbursement                                       n/a                         n/a                      n/a
Active clients
    Total number of active clients- end of period                             50                         176                       202
    Cumulative number of loans disbursed over the period                      420                        1,024                    1,858

    Present % of women                                                        18%                        22%                      26%
Outstanding portfolio

    Outstanding portfolio, end of period                                 18,373,211                   32,709,492               52,814,052
    Average monthly outstanding portfolio                                     n/a                         n/a                      n/a
    % of total net outstanding portfolio                                      15%                        18%                      24%
    Average outstanding loan per client                                    367,464                     185,849                   261,456
Portfolio quality                                                 Amount          %         Amount         %           Amount       %
    Current outstanding portfolio                                    2 747 712        14.95 15,235,955             46.58    5,983,460       11.33
    On time but rescheduled                                                   0          0.00             0         0.00           0         0.00
    Arrears 1-30 days                                                         0          0.00             0         0.00           0         0.00
    Arrears 31 – 60 D                                                         0          0.00             0         0.00           0         0.00
    Arrears 61 – 90 D                                                         0          0.00             0         0.00           0         0.00
    Arrears 91 – 180D                                 1,580,603     8.600.00 2,549,464           7.79 6,662,501     12.62
    Arrears above 180 days                           14,044,896 76.440.0014,924,073             45.6340,168,091     76.05
    Write off amount




                                                www.planetfinance.org
                                                                         42
                                                    PlaNet Rating      Equity Building Society (EBS), Nairobi - KENYA, June 2001


Loan 4 : School fees Loan
Date of creation      1997
History of the productThe product was developed after realizing that many businesses suffered in the event that their proceeds
                      are used to pay for school fees.
Clients               clients with regular income, especially women
Methodology and terms          loans are given on a quarterly basis (when schools open)
                               repayment period from 4 months to one year
                               collateral required include title deeds, car log books, quoted shares, guarantee from the
                               employer
                               disbursed on the same day
APR                   Between 34% and 53%
Average loan size at            Minimum amount Kshs. 3,000
disbursement                    Maximum amount Kshs. 100,000
Appreciation on the             Very popular product, with no repayment problems
product




               School fees loans – Kshs                              Dec 98                     Dec 99                       Dec 00

    Annualized nominal interest rate                                 32,00%                     28,00%                       28,00%
    Global effective interest rate                                                            34% to 53%                 34% to 53%
    Average loan amount at disbursement                                n/a                        n/a                         n/a
Active clients
    Total number of active clients- end of period                      38                         136                         582
    Cumulative number of loans disbursed over the period               108                        536                        1,563

    Present % of women                                                60%                         68%                         71%
Outstanding portfolio

    Outstanding portfolio, end of period                            11,483,257                22,896,641                  40,239,278
    Average monthly outstanding portfolio                              n/a                        n/a                         n/a
    % of total net outstanding portfolio                               5%                         7%                          8%
    Average outstanding loan per client                              302,191                    168,358                      69,139
Portfolio quality                                          Amount         %           Amount        %               Amount      %
    Current outstanding portfolio                            11,483,257          100.00   24,091,072       100.00    40,239,278        100.00
    On time but rescheduled                                            0           0.00           0          0.00              0         0.00
    Arrears 1-30 days                                                  0           0.00           0          0.00              0         0.00
    Arrears 31 – 60 D                                                  0           0.00           0          0.00              0         0.00
    Arrears 61 – 90 D                                                  0           0.00           0          0.00              0         0.00
    Arrears 91 – 180D                                                  0           0.00           0          0.00              0         0.00
    Arrears above 180 days                                             0           0.00           0          0.00              0         0.00
    Write off amount                                                   0                          0                            0




                                               www.planetfinance.org
                                                                        43
                                                    PlaNet Rating      Equity Building Society (EBS), Nairobi - KENYA, June 2001


Loan 5 : Emergency Loan
History of the product Designed to meet clients‟ emergency needs such as medical bills
Clients                All
Methodology and terms  no collateral required depending on the client
                        repayment period from 7 days to one year
                        normally, the MFI writes cheques directly to the clients‟ creditor, ensuring that the facility is not
                           abused
                        the collateral required depends on the client‟s income and includes title deeds, log books, quoted
                           shares, and fixed deposits. The institution may consider giving this facility without collateral for
                           clients with very active accounts
                        no penalty for early repayment. Clients therefore incur interest on loans up to the time when they
                           clear
                         them. Clients are usually informed of this mode of payment and most of them take advantage of it.
APR                    Between 34% and 53%
Loan size at                    Minimum amount Kshs. 3,000
disbursement                    Maximum amount Kshs. 30,000




                Emergency loans – Kshs                               Dec 98                    Dec 99                     Dec 00

    Annualized nominal interest rate                                 32,00%                    28,00%                     28,00%
    Global effective interest rate                                                           34% to 53%                 34% to 53%
    Average loan amount at disbursement                                n/a                       n/a                        n/a
Active clients
    Total number of active clients- end of period                      19                        52                         186
    Cumulative number of loans disbursed over the period               56                        284                        528

    Present % of women                                                60%                        65%                       71%
Outstanding portfolio

    Outstanding portfolio, end of period                            4,593,304                16,354,746                 25,149,549
    Average monthly outstanding portfolio                              n/a                       n/a                        n/a
    % of total net outstanding portfolio                               2%                        5%                         5%
    Average outstanding loan per client                             241,753                    314,514                   135,213
Portfolio quality                                          Amount         %          Amount        %            Amount       %
    Current outstanding portfolio                             4,593,304         100.00   17,207,909       100.00   25,149,549        100.00
    On time but rescheduled                                            0          0.00            0         0.00            0          0.00
    Arrears 1-30 days                                                  0          0.00            0         0.00            0          0.00
    Arrears 31 – 60 D                                                  0          0.00            0         0.00            0          0.00
    Arrears 61 – 90 D                                                  0          0.00            0         0.00            0          0.00
    Arrears 91 – 180D                                                  0          0.00            0         0.00            0          0.00
    Arrears above 180 days                                             0          0.00            0         0.00            0          0.00
    Write off amount                                                   0                          0                         0




                                               www.planetfinance.org
                                                                        44
                                                    PlaNet Rating      Equity Building Society (EBS), Nairobi - KENYA, June 2001


Loan 6 : Special Loans
Date of creation       1999
History of the product Loans funded through MESP credit facility
Clients                Micro-entrepreneurs, market vendors (requirement from MESP) , mostly women
Methodology and terms         repayment period from one month to one year
                              collateral required include title deeds, log book, quoted shares and fixed deposits



APR                              Between 34% and 53%
Loan size at                     Minimum amount Kshs. 3,000
disbursement                     Maximum amount Kshs. 250,000




                     Special loans – Kshs                               Dec 98                    Dec 99                    Dec 00

    Annualized nominal interest rate                                    32,00%                    28,00%                    28,00%
    Global effective interest rate                                                              34% to 53%                34% to 53%
    Average loan amount at disbursement                                   n/a                       n/a                       n/a
Active clients
    Total number of active clients- end of period                            0                      288                       538
    Cumulative number of loans disbursed over the period                     0                      324                      1,012

    Present % of women                                                                             82%                        85%
Outstanding portfolio

    Outstanding portfolio, end of period                                     0                  20,532,654                48,890,549
    Average monthly outstanding portfolio                                 n/a                       n/a                       n/a
    % of total net outstanding portfolio                                  0%                        8%                       10.5%
    Average outstanding loan per client                                                           71,294                    90,875
Portfolio quality                                             Amount         %          Amount          %          Amount          %
    Current outstanding portfolio                                            0      0.00   20,532,654        100.00   48,890,549       100.00
    On time but rescheduled                                                  0      0.00            0          0.00            0         0.00
    Arrears 1-30 days                                                        0      0.00            0          0.00            0         0.00
    Arrears 31 – 60 D                                                        0      0.00            0          0.00            0         0.00
    Arrears 61 – 90 D                                                        0      0.00            0          0.00            0         0.00
    Arrears 91 – 180D                                                        0      0.00            0          0.00            0         0.00
    Arrears above 180 days                                                   0      0.00            0          0.00            0         0.00
    Write off amount                                                         0                      0                          0




                                               www.planetfinance.org
                                                                        45
                                                    PlaNet Rating       Equity Building Society (EBS), Nairobi - KENYA, June 2001


 Loan 7 : Group Guarantee Loans
 Date of creation      1999
 History of the productMethodology has been altered in 2000. In 1999, the amount lent was three times the amount of the
                       savings
 Clients               Market traders, very popular with women
 Methodology and terms         No physical collateral required : loan is secured by the groups savings
                               Amount of the loan limited to 90% of the savings
                               Repayment period from one month to one year


 APR                             Between 34% and 53%
 Loan size at                    Minimum amount Kshs. 3,000
 disbursement                    Maximum amount Kshs. 300,000




                 Group Guarantee loans – Kshs                                 Dec 98                  Dec 99                  Dec 00

    Annualized nominal interest rate                                          32,00%                 28,00%                   28,00%
    Global effective interest rate                                                                  34% to 53%              34% to 53%
    Average loan amount at disbursement                                        n/a                        n/a                   n/a
Active clients
    Total number of active clients- end of period                               0                      125                      76
    Cumulative number of loans disbursed over the period                        0                      232                      202

    Present % of women                                                                                 80%                     85%
Outstanding portfolio

    Outstanding portfolio, end of period                                        0                   21,989,689              15,089,729
    Average monthly outstanding portfolio                                      n/a                        n/a                   n/a
    % of total net outstanding portfolio                                       0%                         %                         %
    Average outstanding loan per client                                                              175,918                  198,549
Portfolio quality                                                   Amount          %            Amount         %       Amount          %
    Current outstanding portfolio                                               0         0.00 21,833,367           99.29 14,892,764        98.69
    On time but rescheduled                                                     0         0.00              0        0.00               0    0.00
    Arrears 1-30 days                                                           0         0.00      156,322          0.71    196,965         1.31
    Arrears 31 – 60 D                                                           0         0.00              0        0.00               0    0.00
    Arrears 61 – 90 D                                                           0         0.00              0        0.00               0    0.00
    Arrears 91 – 180D                                                           0         0.00              0        0.00               0    0.00
    Arrears above 180 days                                                      0         0.00              0        0.00               0    0.00
    Write off amount                                                            0                           0                           0




                                                www.planetfinance.org
                                                                         46
                                                           PlaNet Rating        Equity Building Society (EBS), Nairobi - KENYA, June 2001




                     Description of savings products




                                                   #1                 #2                #3              #4              #5               #6
                                          Ordinary Savings       Remittance         Business         SAYE1          Children          Fixed
                                                                  Savings           Savings                         Savings          Deposits
          Clients                         Small business      Customers with Business        People in           Minors            Companies
                                          people              regular income community,      informal                              and individuals
                                                              (salaries,     who use it as a employment                            (do not need to
                                                              agricultural   current account with no formal                        hold a savings
                                                              proceeds,                      pension                               account)
                                                              dividends)                     scheme
          Minimum balance                 Kshs. 400           None           Kshs. 1,0002                        Kshs. 400      Kshs. 10,000
          Withdrawal restrictions          - 1 withdrawal max - 1 withdrawal None            - 1 withdrawal      Free access to
          (fees)                          every 7 days (if    max every 7                    max every 7         funds without
                                          more : Kshs 200) days (if more :                   days (if more :     any charges
                                           - Max withdrawal : Kshs 200)                      Kshs 200)
                                          20,000               - Max                          - Max
                                                              withdrawal :                   withdrawal :
                                                              20,000                         20,000
          Ledger fees                                                                        None                None
          Chequebook                      Kshs. 200           Kshs. 200      Kshs. 200                           Kshs. 200
                                                                                                                 Free bankers
                                                                                                                 cheques for
                                                                                                                 school fees
          Interest earning balance Kshs. 5,000                 Kshs. 5,000                                       Kshs. 5,000
          Interest rate                   Around 8%            Around 8%         Around 8%       Around 8%       1%       premium Negotiated
                                          (fixed at the end of (fixed at the end (fixed at the   (fixed at the   on       ordinary with
                                          the year)            of the year)      end of the      end of the      rate              customers, but
                                                                                 year)           year)                             not higher than
                                                                                                                                   T-Bills




1   Save As You Earn
2   Except Thika and Corporate Branch : 5,000
                                                     www.planetfinance.org
                                                                                 47
                            PlaNet Rating       Equity Building Society (EBS), Nairobi - KENYA, June 2001




                   Branches activity


                         Loans                                           Savings
 May 2001 Number of active    Outstanding                  Number of               Outstanding
            borrowers          balance                     depositors               balance

Thika          1,204     7.6%   17,653,047      2.7%          6,715     7.7%     63,971,497      5.4%
Kangari        2,099    13.2%   22,906,320      3.5%          7,707     8.8%     58,017,849      4.9%
Murarandia     1,741    11.0%   22,502,463      3.5%          8,049     9.2%     43,943,468      3.7%
Kangema        2,288    14.4%   38,048,261      5.9%         14,442    16.5%    107,068,072      9.1%
Kiriaini       2,214    14.0%   50,154,482      7.8%          9,918    11.3%    126,289,893     10.7%
Othaya         2,026    12.8%   41,303,449      6.4%          5,466     6.2%     32,101,272      2.7%
Karatina       2,880    18.1%   55,476,202      8.6%         17,894    20.5%    115,163,256      9.8%
Nairobi        1,418     8.9% 397,340,064    61.6%           17,279    19.8%    631,796,624     53.6%
Total         15,870   100.0% 645,384,288    100.0%          87,470   100.0% 1,179,940,186    100.0%




                        www.planetfinance.org
                                                 48

								
To top