TanzaniaInvest interviewed Respige Kimati, Managing Director of Mkombozi Bank Plc (DSE: MKCB), which was established with the main objective of serving and supporting emerging Tanzanian businesses.
In this interview, Respige delves into the bank’s focus, its strategies for mitigating risks associated with lending to the lower end of the market, and the key drivers behind its recent financial performance turnaround.
He also discusses the bank’s objectives and strategies for the future, its plans to compete with larger banks, the economic sectors that are expected to drive its growth in the coming years, and discusses the economic outlook of Tanzania.
TanzaniaInvest: Tell us about your bank’s focus.
Respige Kimati: Mkombozi Bank is focusing on micro, small and medium-sized enterprises, mid-sized corporates and institutions, as well as individual consumers. We have identified a gap that exists between large corporates, mid-sized corporates, and the low end of the market. We have designed solutions specifically for the lower segment, such as solidarity group loans for micro borrowers. These loans are available to borrowers regardless of their loan amount, starting as low as USD 100. We have also tailored our processes and product offerings to accommodate the operating dynamics of various business segments in order to eliminate financial inclusion limitations.
“We have designed solutions specifically for the lower segment, such as solidarity group loans for micro borrowers.”
TanzaniaInvest: How do you mitigate the risks associated with lending to the lower end of the market? And what kind of solutions does this segment require?
Respige Kimati: The perceived risk is high, but it depends on how you approach it. We believe the risk of the unknown is a problem for many players. At Mkombozi Bank, we have taken the time to understand the dynamics and challenges of the community we serve. We have a strong connection to the lower segment of the market through the Roman Catholic Church footprints, as it was the founding institution of our bank. This connection allows us to understand the needs of the community at large and develop suitable solutions. We have different solutions tailored to various segments within the church and outside, including small Christian community groups and other social-economic groups. The solutions we offer vary depending on the dynamics and nature of the people we serve.
TanzaniaInvest: Mkombozi Bank Plc has shown a significant turnaround in its financial performance recently. Could you elaborate on the drivers behind this change and the key financial metrics that highlight the bank’s improved performance?
Respige Kimati: In the past, the bank experienced losses and a dilution of capital due to non-performing loans. However, we developed a turnaround and repositioning strategy starting in 2020. One of the key challenges we identified was the credit function, including issues with loan origination, management and remedial. We addressed these challenges by implementing initiatives to set up a robust credit framework and improve our credit policy and processes. We also focused on remediating non-performing loans by restructurings and driving recovery initiatives. Additionally, we implemented an aggressive cost management strategy, which helped improve our financial performance. This way, we were able to enhance the bank’s capital adequacy and reduce risk exposure.
Consequently, the bank has indeed experienced a remarkable improvement in its financial performance. Our after-tax profit for the year 2022 stood at TZS 6.79 billion. This signifies a substantial improvement compared to previous years when we faced losses or marginal profits.
“Our after-tax profit for the year 2022 stood at TZS 6.79 billion. This signifies a substantial improvement compared to previous years when we faced losses or marginal profits.”
Furthermore, we have made progress in transforming our deposit mix. Currently, approximately 60% of our deposits come from cheaper deposits such as savings and current accounts, while the remaining 40% is from expensive sources such as term deposits. We have in place an aggressive strategy to acquire cheaper deposits through mass recruitment of retail savings and current accounts in order to achieve a stable and sustainable low-cost base for sustainable profitability and growth.
Overall, the combination of our repositioning strategy, focused risk management, and prudent cost management has driven Mkombozi Bank’s financial performance turnaround, setting a solid foundation for sustained growth and improved returns for our shareholders.
TanzaniaInvest: What are the objectives and strategy for the next few years?
Respige Kimati: Our major goal is to address our capital adequacy and achieve profitability that allows us to pay dividends to our shareholders. Our strategy is to operate with double-digit profit before tax and post double-digit growth in profitability (in TZS billion).
“Our major goal is to address our capital adequacy and achieve profitability that allows us to pay dividends to our shareholders.”
We aim to transform our deposit mix to have at least 70% in cheaper deposits through mass savings and current accounts. This shift will contribute to improving our net interest margin and overall profitability. We aim to increase our deposit base to TZS 300 billion shillings within three years by mobilizing these cheap deposits. This will be achieved through targeted marketing efforts and building relationships with customers.
Furthermore, as we expand our branch network and agent banking solutions, we aim to enhance financial inclusion and drive economic activities in underserved regions of Tanzania. These regions offer untapped potential, and we see opportunities in establishing a physical presence and providing financial services to individuals and businesses in these areas. For this, we have adopted a strategy of expanding our agent banking network from the current 400 agents to 900 by year-end 2023 across the country.
“As we expand our branch network and agent banking solutions, we aim to enhance financial inclusion and drive economic activities in underserved regions of Tanzania.”
TanzaniaInvest: How do you plan to differentiate yourselves and compete with larger banks with wider networks?
Respige Kimati: While larger banks have a wider network/strong technology investment, our competitive advantage lies in our niche market, specifically the church market and value its value chain. The believers and congregants who contributed to the formation of our bank are our target customers in addition to other segments of the market. We leverage this connection and offer banking services to the targeted segments.
TanzaniaInvest: What are the key economic sectors that you believe will drive your growth in the coming years?
Respige Kimati: We see opportunities in the service industry – especially education and health, agri-processing, and trading for SMEs and micro-enterprises. 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
“We see opportunities in the service industry – especially education and health, agri-processing, and trading for SMEs and micro-enterprises. Tourism, mining and agriculture are also important sectors.”
TanzaniaInvest: How do you see the economic outlook of Tanzania?
Respige Kimati: Tanzania has a strong potential for economic growth, provided we maintain micro and macroeconomic variables both in the short and long term. A viable and stable political and policy environment is key to materializing 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 economy of Tanzania has opportunities for growth, but external factors such as global politics/dynamics and outbreaks of diseases can impact this potential. However, with a favourable political environment, we see great opportunities for Mkombozi Bank and the country as a whole.
