How Mkombozi Commercial Bank strategy yielded Sh6.79 billion profit

Mkombozi Commercial Bank PLC posted the Profit After Tax of Sh6.79 billion for the 2022 financial year being the outcome of the transformation and repositioning strategy of the business, which has been in execution for the past three years.

The Bank also posted growth in key business drivers and set a strong trajectory for growth and profitability with a strategic focus on Micro, Small and Medium Enterprises, Corporates, Institutions and Consumer segments. The Bank launched the expansion of its business outlets and service channels both physical and digital.

The Citizen Business Reporter Alex Malanga last week interviewed the Managing Director of Mkombozi Commercial Bank, Mr Respige Kimati, to discuss the Bank’s performance and prospects for the future. Read on.

Mkombozi Commercial Bank Plc has shown a significant turnaround in its financial performance recently. Briefly highlight the drivers behind this positive outcome, especially for the financial year ending 2022.

The 2022 financial performance is a culmination of the turnaround and repositioning strategy of the Bank’s business which was launched in 2020. This strategy seeks to address revenue and cost drivers in view to mobilize and nurture a profitable clientele base and enhance operational efficiency to maximise business returns.

The Bank targets Micro, SME, Corporate, Institutions and Consumers; how does this strategy inform the 2022 performance?

The segments identified above are a primary source of revenue as liquidity, which is pivotal in running the banking business. We have identified a niche umbrella within which these segments operate and around which we have tailored solutions necessary to address the banking needs of these segments.

Our approach is to provide banking solutions which address business dynamics and operating conditions of different segments to bridge the service gap which is attributed to their inherent nature and limitations.

The Bank has invested significantly in service outlets and infrastructure relevant to reach out to the targeted customer base as well as facilitate banking transactions. The Bank launched its Agent Banking solution towards the end of 2021, which has had a significant positive impact in accelerating customer acquisition and transactions strategy for the Bank.

We have over 400 agents (Mkombozi WAKALA) with a plan to grow it to 900 by the end of 2023.

This outlet serves basic customer services such as account opening, deposits and transactions and constitutes significant agenda of our expansion and growth ambition.

Also, we introduced Internet Banking and enhanced our Mobile Banking solution to expand the scope of service on this platform.

What challenges did the bank encounter in your turn-around strategy?

The major challenge was that related to compliance especially insufficient capital which inhibited growth ambitions for the Bank.  This is indeed an inherent limitation to this type of business for many players.

The banking industry is highly regulated, more so because it essentially operates on other peoples’ money (customers’ deposits). The Bank had also faced the challenge of high Non-Performing Loans (NPL), which had put further stress on capital adequacy levels.

However, through these challenges, we saw an opportunity and therefore the turn-around strategy referred to was formulated to drive a performance recovery and business repositioning process to achieve capital formation process through both internal and internal sources.

What policy and operational challenges still hinder the effective delivery of financial needs of capital-starved businesses, associations and individuals?

In my view, the challenges are mainly in two groups. Firstly, the customers themselves. The majority of micro and small businesses are not in the formal sector yet, which hinders their formal access to financial services such as loans and transactions.

This informality is attributed to a lack of business education and lack of readiness. Secondly is compliance and transaction costs.

Business formalisation processes and cost environment acts as a disincentive factor. Also, transaction costs in the financial sector could act as a limiting factor to financial inclusion.

The government has been taking steps in creating an enabling environment for formalising businesses and we have seen significant progress on this front.

However, there is still more to be done, especially in collaboration with the banking and finance sector to keep up with the pace of the changing operating environment locally and at the global level.

We should aim at bringing about efficiency in business formalisation processes especially through the integration of operating platforms of various authorities to form a one-stop point for the business formalisation process, where all licenses necessary to open up a certain business are provided from one point.

How can banks deal with micro and small businesses which are considered to be risky markets?

The risk perception is dependent on the risk approach. The risk of the unknown is a major problem for many players in this segment. Players should take time to understand the dynamics and challenges of this segment and tailor products and service solutions to meet their needs while mitigating associated risks. Banks need to invest in customer education and develop internal capacity to handle and serve this market segment.

Going forward what are opportunities that you see on your way?

The banking industry is a mirror image of the economy. When the economy is performing well, the banking industry reflects the same. Tanzania has a strong potential for strong economic growth, provided we maintain positive micro and macro-economic variables both in the short and long term.

A viable and stable political and policy environment is key to materialising these opportunities.

If these factors are in check and we sustain the current positive conditions, we can attract investor confidence and capital flows into the country.

The banking industry stands to leverage the advantages brought about by these positive economic conditions in the country and the ongoing investment in capital infrastructure such as roads, railways and power.

What lessons can we draw from the Covid-19 pandemic and staff contribute to the success of Mkombozi Bank business?

Covid-19 Pandemic took the world through a gruesome and unprecedented experience. It transformed mankind and the world business order. The effects of disruption of global production, service delivery and value chain linkages are far-reaching. They constitute a new set of inherent risks that precedent current and future operating circumstances.

Our team has been very instrumental in the success exhibited by the Bank, with immense sacrifice and commitment over time in the transformation journey to make Mkombozi Commercial Bank PLC what it stands for today. I thank them profoundly and urge them to keep walking our talk.

We see opportunities in the service industry - especially education and health, agri-processing, and trading for SMEs and micro-enterprise. Our niche market gives us an advantage in serving these sectors.

Tourism, mining and agriculture are also important sectors, and we focus on the value chain opportunities within these industries. We work with suppliers, vendors, and transport providers who support these sectors’ journey to greatness.