The Strange Story of James Mwangi & Alnoor Kassam
Over the last 5 years, Equity Bank’s rise has created a sleuth of cinderall
stories for many development “experts” who had begun touting it as the super model of banking from many third world countries. The Cinderall stories however, often conveniently fail to mention the background of Equity Bank’s CEO James Mwangi and his former employer, Trade Bank, which was owned by a very colorful Kenyan Indian named Alnoor Kassam. An honest examination of their backgrounds would certainly put a dent into this cinderella story, which has made so many development experts feel good about themselves.
First, let’s look at the history of the founder of Trade bank. A bank, which collapsed in the 1980’s under dubious circumstances. The bank was accused of laundering money for politically connected individuals and when Kassam (foolishly) tried to collect a debt from one of those individuals, his life was threatened and he had to flee the country.
After fleeing Kenya, Kassam then winds up in Calgary, Canada where he had acquired permanent residency and decides to run for mayor because in his own words, he wants to bring about political accountability in Calagary in order to, “…. ensure the “highest ethical standards from civic politicians”. The entire article on his comedic run for mayor can be read here. It includes questions about where he got the $1 million dollars to fund his mayoral campaign (the accusation was that he got around $23 million dollars when trade bank collapsed and that’s what he was using in Canada).
Now, James Mwangi used to work for Trade bank and by extension, he also worked for Alnoor Kassam. He was a Senior Finance Manager at the bank and also left when it collapsed. Like Kassam, many have said that Mwangi left with a large chunk of money on his way out. The bank was also a conduit for the Goldenberg scam where billions of shillings were siphoned out of the country. The depositers at the bank have never recovered their money. I wonder if they are now Equity bank customers?
So, fast forward, 15 or so years later and Mwangi makes a reappearance, but this time as the CEO of a new bank called Equity. This time, the public relations logo for the banks existence is simply brilliant: They are going to give poor people a chance to put their money in the bank for free. Then, they are going to give these poor people loans and charge them a much lower interest rate (tears are falling from my eye’s already at such altruistic storylines). And because Kenya has many, many, poor people, the bank gets flooded with new customers and it’s “deposits” grow astronomically. This is where my questions about what this bank is doing begin to arise.
What is Equity bank doing with people’s deposits? When you deposit money in a bank, it doesn’t just sit somewhere in a vault. Your deposits are pooled together and the bank re-invests them around the world. However, most countries have rules that require banks to leave a certain amount of just-in-case money aside. i.e. just in case people start asking for their money back, the bank will be able to give it back to them.
Questions, questions, questions and no answers. Nobody seems to know what these guys are really doing.
I’m honestly beginning to believe that Equity Bank may actually be a ponzi scheme and as long as Kibaki is in office, they’ll be able to keep the scheme going by getting the government to put it’s money in from all sorts of sources (youth fund, women’s fund, etc, etc) with them. However, I am beginning to think that if Kibaki goes in 2012, the tap will run dry and the scheme will come tumbling down, but Mwangi & Co., with their universities and other real estate investments, will be all set. It’s those poor depositers who’ll be left holding the bag again.
They’ve been questions about this bank’s dealing for about 2 years now, but those questions have been drowned out by those who don’t want to believe that their Cinderella story may turn out to be a nightmare.
Usually, if you want to find out information about a public company, you as a shareholder could sue them and then during the lawsuit, they’d be compelled to provide information about their company (under oath). If they lied under oath they could end up in jail and so many don’t lie (the consequences are too steep).
So, in Kenya where the courts are so corrupted and where the individuals at Equity are so politically connected, what options do you have to verify the information? I mean at some point, people are going to have to start asking questions beforehand because this is what happened with the stockbrokers that collapsed with people’s deposits. Everyone was caught up in the euphoria of making money that they forgot to take a step back and ask some serious questions about where their money was actually going.
I know this post will illicit angry responses, but we can’t have a culture where nothing is ever questioned.
Nice article, well written and valid questions. For those who are going to begin breathing brimstone and fire for the simple reason that you glorify theft and never question moneied authority, take a minute and ask your self; where do you bank and why not with Equity, if your grandmother had her savings there and this indeed were the scenario, what would you feel?
Thats the perspective you should be comming from, not talking of jealousy, envy, bitterness et al. Please think rationally, give an educated opinion, please don’t say you know the ‘owners’ and they are not doing so, we too expected alot from even our President and many others who have let us down, stop this culture of taking pride by association/affiliation…..look at things for what they may actually be or have the potential of being.
I even wonder whether they bother keeping up with the daily ratio requirements of the CBK. Do not bring in ethnicity, thats a cheap shot. I hope this particular subject may be guided in a mature, intelligent and rational manner, let us just for one minute be “friends” and try to see whether there actually may be an issue here. If not, hurl all the abuses you have managed to with hold, if not, then we do have a problem on our hands and what then is our moral obligation? I urge all to please take time on this one and treat it with the necessary seriousness it both deserves and requires.
here we go again…
Now Noni, why are you getting annoyed?
Don’t worry. I am working on getting more uplifting stories about Kenyan entrepreneurs and you will be seeing them soon, but in the meantime, we need to start questioning what these people are doing because it’s not their money. Equity banks money is coming from poor Kenyans and from the government (read: the taxpayers). It’s also a public company and the public owns a piece of it, but do they know what’s actually going on over there?
The entire banking industry around the world is coming under scrutiny and in Kenya, a country that has a weak rule of law system, you’d have to be a little crazy to think that these guys were following the rules.
Something is not adding up over there….
For those who do not have their life savings in Equity or have nothing to loose, please spare those of us the garble of your retrogressive comments. Can we have so constructive criticism
!
KE:
U know by your website/blog’s NAME, many people who log on are either in business ventures or careers hence seek business ideas/advise re: kenya. So I will give some advice today, change your url name..that will attract the like minds…critical observers, watchdogs etc and u’ll succeed. If you don’t believe me just look at your best hits and their comments…kencall, rUto,raiLa etc. Don’t get me wrong,u points are good and valid but you have the wrong audience…
Get a name that identifies with your audience! .
KE
You have only focused on Mwangi. In order to balance your story, you should be objective. Who are the other shareholders of Equity?
Give us ALL the facts so that we can make informed decisions. Otherwise you may be branded a busybody, a rumour monger, a purveyor of hearsay etc.
GIVE US ALL THE FACTS. NOT HALF THE STORY.
Wow,this sensational!
Why should I give you? I assume you have access to the internet. If you think there’s additional information that is missing, do your own homework and find whatever facts that you think are missing. Don’t wait for me to do it for you.
I keep telling you people that blogs are not about spoon feeding you information. They are here to provide a forum for discussion, but that doesn’t mean that you should accept everything they say or that you should stop thinking for yourselves, which is part of the essence of this piece: That too many Kenyans don’t want to think for themselves or ask questions or do anything. We just want to accept whatever we’re told. No. Think for yourselves, come up with counter-points if you think the information is not correct, look into it on your own, analyze it, etc, etc…
KE
OK I choose not to agree with you because everything you said does not stand up to scrutiny. It appears to be just a rant to vent off steam rather than a seriously researched piece.
Even, if its a blog, at least make an effort to support your assertions with data. I am not asking you to spoonfeed us.
I have made a very specific query – why have you focused on Mwangi and not the other shareholders of Equity? (some of who include international investors)
Secondly, I personally know some small business business people in Nairobi who have expanded their businesses through loans from Equity. I believe this is why it is popular with those who had been shunned by the big banks.
My opinion – $£$!&! the big banks and long live Equity.
Equity bank is the best for the common mwananchi.
I personally had been shunned by the ‘big’ banks and understand ALL too well that Equity gives an ear to ALL.
My personal achievement in business is a good prove to me that YES it’s the best.
And for those who want to be ‘extra keen’, why not make sure that in all the times of operation with the bank, you owe them and not vice-versa?
I am not surprised Equity is still giving out loans. As long as people continue to deposit their money at the bank and as long as the government continues to shift money from the youth fund and women’s fund into Equity, they will have money to loan out.
However, that is not really the issue here. Most ponzi scheme’s can survive as long as there’s a regular stream of money coming in.
The issue is, what is Equity doing with the millions of shillings it is getting both from depositer’s and now from the government (or taxpayers). Where is this money being “shifted” to? it’s not sitting in a bank vault somewhere. Someone has access to it and they’re moving it around, but to where and whose names are on these investments that Equity is making?
While you are allowed to move money around, you are required to keep a percentage in reserves just in case there’s a run on the bank. Are they doing that? Who knows?
This is why locally owned banks are so dangerous. It’s because they operate in this wheel & deal culture of Kenya, where your survival is based on your political connections and because of that, your allowed to flout the rules and this is when you run into trouble.
** You start giving out large loans to politically connected people (who have no intention of ever paying anything back).
** You ignore the capital reserve requirements because the CBK governor and Finance minister are your “buddies”.
** You start building universities with that money (Pioneer International University). Why are banks going into the education business? & who owns that university? is it the shareholders or just Mwangi & co.,?
**And you can’t just ignore Mwangi’s history at Tradebank where he worked under Alnoor Kassam. This is not a rumour. It’s a fact that he worked there and that bank collapsed under dubious circumstances. Read the link to the story I posted on Alnoor Kassam. The Canadians couldn’t figure out where he got all that money from.
Be very afraid when Equity ATM’s conveniently break down at the end of the month. This is not a system issue but a liquidity issue. Systems do not keep breaking months on end, this is just a sign of severe liquidity problems. Hakuna pesa. Consider yourselves warned.
Quick facts
1. Equity has always existed prior to the Kibaki Government
2. Pioneer is owned by the Munga family
3. Central bank is a very proactive regulator, no suscipious dealing go on. When is the last time you heard a bank collapse.
So if your employer goes under, are you fraudulent by association..
Equity Bank has excellent liquidity and its not the only bank whose ATMs break down at the end of the month. However, I think the reason why people are apprehensive about Equity is because the Bank has not moved beyond Dr James Mwangi. It appears as though Mwangi is Equity. Does Equity have systems and procedures that can survive Mwangi’s departure?
GIM:
I’m surprised you’d say this given Kenya’s history of political corruption. If the central bank is such an independent and neutral institution, why does the governor always seem to belong to the tribe of the president?
If your employer goes under, you may be guilty, especially if you are the director of the company and especially if the company was public. Why do you think the directors of banks like Lehman Brothers are currently being sued to high heaven by the shareholders?
The founders of hedge funds that funneled money to Madoff are also being sued to high heaven for breaching their fiduciary duties. However, the lowly secretaries who had no idea what was going on are not going to get sued.
So, yes, if your company goes down, you may be guilty by association, especially if you were a high level executive who made bad decisions with other people’s money.
Godfrey:
How do you know that Equity has “excellent” liquidity? Mwangi told you?
Mmmh Me thinks that Equity is the real thing. Its actually part owned by some American Entity for which i forget the name.
Harvard Business School and the United Nations have bothe given Equity bank some huge awards. So i suppose they are legit after all.
Otherwise Keep up the articles.
JohnKaranja.com
I think knowing that banks depend on the confidence of the public to survive it is unwise to question the integrity of a private bank without having evidence to support that assertion. I believe that Equity has done a remarkable job that needs to be emulated elsewhere.
Now last I checked it was not wrong for a bank to invest or lend to an educational establishment so long as the rules were followed and the money was paid back. It is also disingenous to question where and to whom Equity lends it’s money to. There is no bank in the world which reveals all it’s loan recepients because that goes against bank confidentiality rules. Equity has been regularly audited by private accountancy firms with worldwide repute and no matter who holds the governorship of the CBK no impropriety has yet been detected.
To suggest that a persons previous job disqualifies him from holding another job especially if he has never been charged with wrong doing is also not a logical conclusion. As for the reserve requirement that should be asked of all banks and not just Equity because failure to do so threatens the whole banking sector. That should be directed at the CBK because that is the job of the CBK and not Equity.
Finally let me say that Kenyans have resorted to thinking that negativity and casting unsubstantiated aspersions somehow makes them look intelligent or knowledgeable but that is actually a recipe for disaster. In a world where countries are looking for investment and trying every way to sell themselves Kenyans seem to be doing the opposite. How does this article advance our economy I wonder?
Transparency and accountability should be improved by doing research such as the MARS group is doing. You can for example find out about Equity’s complaince with the reserve requirement by writing a letter to the CBK or the Capital Markets Authority or even asking for help from the IMF if you dont get answers. Kenyans let’s be proud of the few positive things going for us like the Safaricom phenomena, fibre-optic cables and education system. Think positive Kenya. Kenya Yes We Can.
Just to give an example of Equity’s cash reserves. A couple of months ago, there was a rumour in Machakos about Equity and depositors rushed to the Machakos branch to withdraw their money. Sensing a run, the branch manager called the headquarters in Nairobi to seek advice. A truckload of money was sent from Nairobi to Machakos just to prove that Equity could pay anybody who wanted their money at any time. The sight of a money-laden truck arriving in Machakos was enough to dispell any negative rumours.
Godfrey:
Your kidding right? Please tell me you made this story up. It’s okay. I’ll accept it and give you a brownie point for having a great imagination. Really, I will.
Its not a lie, it happened. This was about the time when questions about Equity Bank were being raised in parliament and people were afraid of losing their money. The story was even reported in the Kenyan papers.
Wouldn’t it have been more prudent for Mwangi to give a press conference and take questions about the bank so that people could have been more assured?
I mean, what, did the truck have transparent windows so people could look into it and see the cash?
that’s crazy.
Ke:
YOu are absolutely correct, we as Kenyans believe our enterprises are most well run companies when they are making boat loads of money on paper. Thus, no one questions!!! Then you have some people stating that since some institutions have given them awards or highly rated them they must be a great company. It’s all a bunch of “bull” – what happened to GM, Lehman, Merril Lynch etc etc, they are all dead..
If any one wants to know anything about Equity, since its a pucblic company read its financial statements in detail, and read all the footnotes and off balance sheet details. There wil be many clues to where they have enough liquidity or are they well capitalized. any if anything is a miss, you will find out.
Remember, you must always question all these companies, don’t just believe what is happening, there is alot happening under the hood that many of the public does not know…
My 2 cents worth – Equity bank is a very suspect bank, and I won’t be surprised it goes down and leaving many millions of Kenyans much poorer…
Your two cents has been duly noted but instead of engaging in the back and forth about equity which we have seen in several blogs, why dont those of you who dont believe in it quickly remove your funds and advice your friends and family to do the same, and let the rest who benefit from it continue banking in it. We have severa banks in Kenya and no one is forced to bank with Equity.
And as for Pioneer college its an entity of the Munga family as was stated earlier and not equity. Im suprised your not also giving two cents on britak isnt it the same names on the shareholding?
Prakash:
Its not about not believing and banking in that institution. We are engaging in an educated discussion where people have different and various opinions. Some people are right and some people are wrong, make your conclusions, but don’t start this stupid non-sense of becoming defensive about institutions. Do your own due diligence, if you feel its strong then do what is necessary, otherwise leave the discussion for intelligent people….
KE,
I agree with your article as well as your clarification that blogs are meant to open up issues for discussions and are not spoon feeding avenues. Equity is a suspect bank ( but it is not the only suspect bank……). We as Kenyans must begin to question how companies are run, how we fete “good businessmen” whose history is so well known…..
I’m coming home to reclaim my assets, on top of that the money from Trade bank is and always was mine. On my return i will give back depositors their investments and reopen the bank. I’m sorry to all Kenyans that this has happened
Please email me alnoor@alnoorkassam.com with your thoughts
Alnoor
hpakcer1 hpakcer!
alnoor…. you think….?
work for the bank and proud to be an official (if customers are members)
until it collapses…
its the bank to be…