FAULU MFB: OURS IS A FORWARD LOOKING APPROACH TO SUSTAINABILITY

The concept of responsible banking is gaining credence globally. Describe how your bank is engaged in responsible banking.

 


The bank uses the SDGs and other relevant national, regional or international including regulatory frameworks to identify assess and be transparent on significant (potential) positive and negative impact resulting from the bank’s capital allocation decisions and its provision of our products and services.

 


The bank undertakes forward-looking assessments of sustainability-related risks and opportunities at transaction, portfolio and strategic level and manage and mitigate significant risks.

 


The bank adheres to international standards and guidelines when it comes to financial reporting through the adoption of IFRS 9 and 16. The bank complies to the requirements of anti-money laundering, upholds all CBK regulation requirements as well as the MFI banking.

 


We are responsible to our Customers:

By treating them fairly, equipping them with financial skills to ensure they make sound financial decisions and also by tailor making our products to suit their needs. A good example is the Faulu Maisha Account. A one of a kind account that allows our Customers to earn a 5% interest to balances above Kshs.3000 and offers Insurance Benefits such as medical cover, last expense cover and Personal Accident cover.

 


We Invest Responsibly:

By ensuring our investments, work practices and buildings are geared towards both direct and indirect positive impact to the environment.

 


Responsible to our Employees:

We ensure we treat our employees’ fairy, meeting their needs as our internal customers and community members, and giving them an opportunity to give back to the society.

 


We are responsible to our communities:

We work with our community and other partners to build a better world and contribute to Education, skills development and local Economic development. One of the main Pillars in the bank is “Maiwaidha” Swahili word meaning advice in which the bank is dedicated in offering financial education to the community at large. This ensures the customers are in a position to make informed decisions as they enjoy a wide range of financial services.

 


Faulu engages in responsible banking by upholding the below six principles which are:

  1. Alignment to the SDGs and Regulatory frameworks of similar nature with the focus of our efforts where we have the most significant impact (BOP)
  2. Impact - Faulu has come up with products promoting financial inclusion, access to affordable protection products priced in accordance with the risks at hand to uphold a win – win situation for the bank and the customer.
  3. Clients and customers- Faulu seeks to incorporate most of the feedback given by customers and ensure we uphold our key mantra which is to Champion the Customer by co creating sustainable financial initiatives for current and future generations.
  4. Stakeholders. - The bank has identified and mapped out our key stakeholders with the aim of creating partnerships that enable the bank to deliver more in such ecosystems. Faulu holds regular customer engagement forums and Focus group discussions to continuously discuss its products and services in order to remain relevant to the needs of the customer in consultation with our regulator CBK.
  5. Governance and Target setting- The bank has established policies and management systems and controls to ensure that sustainability objectives and targets are integrated into all decision-making processes across the bank.
  6. Transparency and Accountability-The bank demonstrates the commitment to be transparent on and accountable for the significant positive and negative impact and contribution to the society’s goals. The bank also provides information on the implementation of the Principles for Responsible Banking in our public reporting.

 


Are you currently using the ESG (Environmental, Social and Governance) factors to measure your sustainability and the social impact of your business?

The bank actively participates in Sustainable Finance Initiative promoted by KBA for all the membership which comprise Faulu Microfinance Bank. Kenya banking industry has adopted the Sustainable Finance Initiative (SFI) Guiding Principles that will guide in balancing their business goals with the economy's development priorities and socio-environmental concerns. The banking industry, through their umbrella body the Kenya Bankers Association (KBA), adopted the Principles on March 31st 2015. The ESG framework is congruent to SFI principle 3 as shown below.

Principle 3: Managing & Mitigating Associated Risks.

Economic development is intertwined with social, humanitarian and environmental concerns; therefore financiers are materially affected by these concerns despite the fact that these risks may be perceived as indirect or secondary. The Guiding Principle is that firms should seek to mitigate social and environmental risks associated with their financing activities through client engagement and effective policies and risk assessment procedures; and in addition, firms should actively measure and report on the financial impact of these risks on their business performance.

With reference to the Environmental criteria the bank is advocating for digitization of processes with the aim of cutting down on paper heavy processes. The bank further does not fund activities with negative ramifications to the environment. The same is enshrined within a policy framework.

Social criteria is demonstrated on the bank’s core values which is shared with the wider Old Mutual Group. The Old Mutual Foundation advocates to positively impact all the communities we serve. A percentage of all our profits funds the Corporate Social Investment initiatives across the pillars of Environment, Financial Education and Health.

How far are you from fully implementing the Banking Sector Charter?

 

 

The Bank submitted to CBK a time bound implementation plan which was approved at Board level in line with the regulatory requirements mid last year and continues to submit to CBK on a quarterly basis a progress report on the implementation of the specific requirements of the Charter. The implementation rate is currently at 41% with the remaining items being tracked in line with the deadlines that had been provided to the regulator.

The following are the items that have been implemented so far. Under the (1st) first principle below is the progress achieved;

  • The Bank developed its inaugural Key Facts Document (KFD) which is currently available in the Bank’s website for access by clients.
  • The Bank has placed abridged versions of the salient features of products via product brochures and pamphlets in its places of businesses including outlets, marketing offices, agents, headquarters and branches.
  • The Bank has revamped its Customer Experience Program by launched its Customer Service Charter, improving capacity as well as enhancing its automation capabilities. Staff up skilling has also been ongoing.
  • Instituting an in-house staff education program on customer experiencem

Under the 4th (fourth) principle which is Financial Access

  • Customer Centric Product Development Progress
  • The Bank’s product development process includes the following pillars;
  • Research embedded development & review process to incorporate market driven requirements
  • Team based iterative development process to harness key skills in the Bank
  • Strategic aligned process to ensure market alignment and dynamism


How would you describe your performance in 2019? (one word).

Spectacular

Where did growth come from if any?

The bank’s Profit before tax grew by 68% from Ksh 287Mn in 2018 to Ksh 482Mn due to growth of the loan book resulting to increase in interest income.The total assets grew by 9% from Ksh 27.2Bn in 2018 to Ksh 29.7Bn in 2019 attributed to increase in outstanding loan balances and total liabilities . The Customer deposits increased by 8% from Ksh 18.5Bn in 2018 to 20.1Bn in 2019 due to increased deposit mobilization initiatives

Overall, how do you rate the quality of your loan portfolio?

 

We are not where we projected to be however, there was an improvement in the non-performing loans from the year 2018. The bank is optimistic that there is a better future in improving the quality of our loan book.

What is your average loan size and average loan repayment period?

Average Loan size 414,170 and Average term- 47 Months

 


What is the distribution of your credit portfolio by sector, i.e. agriculture, manufacturing, construction, housing, trade and commerce etc.?

The credit portfolio is largely pegged on Households/Personal sector at about 72%. The rest of the segments include Trade (17.4%), Transport and communication (5%), Real Estate (2.9%) and Agriculture (0.01%)

 


How would you describe the performance of your bank over the last 10 years.

Progressive

What does the year 2020 and the next 10 years portend for your bank?

Given the positive growth trajectory that the bank has had over the past 4 years,the bank is working on sustaining and improving the positive growth in all KPIs. This will enable the bank to attain its ambition of becoming a leading MSME bank and Bancassurance Champion by the year 2025.

The interest rate capping that has had a major impact on the banking sector has finally been scrapped. What does that mean for your bank and the industry?

This means that banks will be able to price risks on loans (credit facilities) hence increase access of loans to the private sector as opposed to previously where banks will shy away from ‘risky’ borrowers

How has the removal of the law affected your financial performance so far?

It will be premature to clearly state the impact of lifting the rate cap to banks for now however, the private sector loan growth continues to improve as banks access credit to the MSMEs

Any new investments or advancements in ICT at the bank?

  1. Security- In order to curb cyber security, the bank has invested in Network Security Enhancement solutions to improve our control environment. Amongst the solutions deployed is the IMSI solution by Safaricom and Check point
  2. Enhancing the business- Upgrade of the bank’s mobile banking solution offering on both USSD and an application supporting credit scoring and digital lending. The enhancements support service delivery via Agency banking, Real Time Settlement (RTS) for customers with paybills/Till numbers and settlement accounts with the bank.
  3. Support of continuous business improvement- Automation of customer feedback through a Net Promoter Score tool and embedding the ratings to service delivery to improve customer experience.

Does your bank have a mobile money lending platform? Yes, Faulu Chap Chap loan for Faulu Community Banking customers.

What is the loan uptake from the platform and the overall quality of the loans taken?

 

This percentage is the effective repayment rate of the Faulu Chap Chap loan. However, the bank is working on a mobile app that will enable the bank have credit scoring capabilities.

Digital field agent to identify where officers to manage targets and tell the location of the group officer which will work to improve the Community banking business and improve the performance of the Chap chap loan.

How is Pesalink’s usage as compared to, EFT, RTGS and other funds transfer methods?

We are in the process of joining Pesa Link

What is the growth trend in the adoption of online and mobile technology in your bank?

The growth has been on upward trajectory with an average 60% month on month.

Any changes on your business model?

Faulu’s strategy remains that of becoming bank of choice for MSMEs. Faulu customer centric business model is developed to be driven by innovation, digital and responsible banking. Based on current environmental and micro economic factors, the bank will majorly increase its concentration on technology and digital enablement to serve, attract and maintain customers. Shared distribution will also contribute greatly to the banks customer service offering points.

How is the scrapping of interest rate cap going to affect your strategy?

The bank shall continue to work towards digitizing its processes

What is your growth plan, where do you see yourselves in 5 years.

We plan to transform into a tier one bank with a long-term goal of becoming a tier one bank.

 


How would you describe our macroeconomic environment currently (globally and locally)?

With the Covid-19 pandemic, where majority of the countries in the world have suspended activities that involve masses including learning, travelling, meetings and gathering, there will be reduced business including major reduction in leading as business slow down, reduction in deposits as customers will divert the excess cash in catering for necessities. Panic purchases will also affect customers who may stock up too much holding cash that they may have availed for savings. In addition, locally the agriculture sector which is the backbone of the*aim of the country has been affected by the locust infestation reducing production resulting to high cost in food products.

What do you see as the biggest threats to Kenya’s banking sector?

  • Reduction in transaction income as financial institution see lower flow in banking halls and reduce transaction charges to customer as the bank encourage for digital transactions. 
  • High non-performing loans due to hard economic times
  • Reduced lending – caution resulting from impact of economic slowdown on business
  • Deposit flight as customers look for better investment avenues to reduce on risk

 


What are the next growth drivers in Kenya’s banking sector and why do you think so?

Technological innovations will be foremost among the drivers of growth in the industry given the changing customer preferences. Customers’ expectations are evolving when it comes to products and services consumptions which are largely driven by technology. These expectations will continuously force banks to be innovative and serve customers efficiently and conveniently as they grow their revenues.

Data driven insights informing decision making and leveraging AI and machine learning are indeed capabilities that will drive competitiveness and customer experience in the industry

Enhanced business models due to digitization of manual processes will impact both service to customers and operating costs

 

 Recent developments within the last one year

  • Launch of a new Bancassurance Rensoft system
  • Automation of customer feedback through an automated Net Promoter Score tool
  • Launch of a new customer experience curriculum training

 List of Current Directors (by Dec 2019)

  • Chancellor Dr. Peter W. Muthoka D.ML.MA(Ed), BA(Hons), EBS,MBS,FKIB,FKIM,DID
  • Mr. George A. Adam
  • COMNR. Peter Gachuba
  • HON.DR.Catherine N. Kimura, LL.M, FCPSK
  • MR. Joshua Muiru
  • Ms. Sophia A. Mukoba
  • Mr. Peter Mogan
  • Ms. Nkirote Njiru
  • Mr. Apollo Njoroge
  • Mr. Andre Keller

Auditors (As at 31st Dec 2019)

Deloitte and Touche

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