This article presents a case study of consistent entrepreneurial growth of Kingdom Financial Holdings. It is one of the entrepreneurial edges which survived the financial crisis that started in Zimbabwe in 2003. The bank was established in 1994 by four entrepreneurial young bankers. It has grown significantly over the years. The case examines the origins, growth and expansion of the bank. It concludes by summarizing lessons or principles that can be derived from this case that maybe applicable to entrepreneurs.
Profile of an Entrepreneur: Nigel Chanakira
Nigel Chanakira was raised in the Highfield suburb of Harare in an entrepreneurial family. His father and uncle operated a public transport company Modern Express and later diversified into retail shops. Nigel’s father later exited the family business. He bought out one of the shops and expanded it. During school holidays young Nigel, as the first born, would work in the shops. His parents, particularly his mother, insisted that he acquire an education first.
On completion of high school, Nigel failed to go into dental or medical school, which were his first passions. In fact his grades could only qualify him for the Bachelor of Arts degree programme at the University of Zimbabwe. However, he “sweet-talked his way into a move” to the Bachelor in Economics degree programme. Academically he worked hard, exploiting his strong competitive character that was developed during his sporting days. Nigel rigorously applied himself to his academic pursuits and passed his studies with excellent grades, which opened the door to employment as an economist with the save Bank of Zimbabwe (RBZ).
During his stint with the save Bank, his economic mindset indicated to him that wealth creation was happening in the banking sector consequently he determined to understand banking and financial markets. While employed at RBZ, he read for a Master’s degree in Financial Economics and Financial Markets as preparation for his debut into banking. At the save Bank under Dr Moyana, he was part of the research team that put together the policy framework for the liberalization of the financial sets within the Economic Structural Adjustment Programme. Being at the right place at the right time, he became aware of the opportunities which were opening up. Nigel exploited his position to clarify the most profitable banking institution to work for as preparation for his future. He headed to Bard Discount House and worked for five years under Charles Gurney.
A short while later the two black executives at Bard, Nick Vingirayi and Gibson Muringai, left to form Intermarket Discount House. Their departure inspired the young Nigel. If these two could establish a banking institution of their own so could he, given time. The departure also produced an opportunity for him to rise to fill the vacancy. This gave the aspiring banker basic managerial experience. afterward he became a director for Bard Investment sets where he attained basic experience in portfolio management, client relationships and dealing within the dealing department. While there he met Franky Kufa, a young dealer who was making groups, who would later become a meaningful co-entrepreneur with him.
Despite his specialized business engagement his father enrolled Nigel in the Barclays Bank “Start Your Own Business” Programme. However what really made an impact on the young entrepreneur was the Empretec Entrepreneur Training programme (May 1994), to which he was introduced by Mrs Tsitsi Masiyiwa. The course demonstrated that he had the required entrepreneurial competences.
Nigel talked Charles Gurney into an attempted management buy-out of Bard from Anglo -American. This failed and the increasingly frustrated aspiring entrepreneur considered employment opportunities with Nick Vingirai’s Intermarket and Never Mhlanga’s National Discount House which was on the verge of being formed – hoping to join as a shareholder since he was acquainted with the promoters. He was denied this opportunity.
Being frustrated at Bard and having been denied entry into the club by pioneers, he resigned in October 1994 with the encouragement of Mrs Masiyiwa to pursue his entrepreneurial dream.
Inspired by the messages of his pastor, Rev. Tom Deuschle, and frustrated at his inability to participate in the church’s enormous building project, Nigel sought a way of generating huge financial resources. During a time of prayer he claims that he had a divine encounter where he obtained a mandate from God to start Kingdom Bank. He visited his pastor and told him of this encounter and the later desire to start a bank. The godly pastor was amazed at the 26 year old with “big spectacles and wearing tennis shoes” who wanted to start a bank. The pastor prayed before counselling the young man. Having been convinced of the genuineness of Nigel’s dream, the pastor did something uncommon. He asked him to give a testimony to the congregation of how God was leading him to start a bank. Though timid, the young man complied. That experience was a powerful vote of confidence from the godly pastor. It demonstrates the strength of mentors to build a protégé.
Nigel teamed up with young Franky Kufa. Nigel Chanakira left Bard at the position of Chief Economist. They would build their own entrepreneurial venture. Their idea was to clarify players who had specific competences and would each be able to generate financial resources from his activity. Their vision was to create a one – stop financial institution offering a discount house, an asset management company and a merchant bank. Nigel used his Empretec form to develop a business plan for their venture. They headhunted Solomon Mugavazi, a stockbroker from Edwards and Company and B. R. Purohit, a corporate banker from Stanbic. Kufa would provide money market skill while Nigel provided income from government bond dealings in addition as overall supervision of the team.
Each of the unexpected partners brought in an equal portion of the Z$120,000 as start-up capital. Nigel talked to his wife and they sold their recently acquired Eastlea home and vehicles to raise the equivalent of US$17,000 as their initial capital. Nigel, his wife and three kids headed back to Highfield to live in with his parents. The partners established Garmony Investments which started trading as an unregistered financial institution. The entrepreneurs agreed not to draw a salary in their first year of operations as a bootstrapping strategy.
Mugavazi introduced and recommended Lysias Sibanda, a chartered accountant, to join the team. Nigel was initially reluctant as each person had to bring in an earning capacity and it was not clear how an accountant would generate revenue at start up in a financial institution. Nigel initially retained a 26% proportion which assured him a blocking vote in addition as giving him the position of controlling shareholder.
Nigel credits the Success Motivation Institute (SMI) course “The Dynamics of Successful Management” as the lethal weapon that enabled him to acquire managerial competences. Initially he insisted that all his meaningful executives attempt this training programme.
Birth of the Kingdom
Kingdom Securities P/L commenced operations in November 1994 as a wholly owned subsidiary of Garmony Investments (Pvt) Ltd. It traded as a broker on both money and stock markets.
On 24th February 1995 Kingdom Securities Holding was born with the following subsidiaries: Kingdom Securities Ltd, Kingdom Stockbrokers (Pvt) Ltd and Kingdom Asset Managers (Pvt) Ltd. The flagship Kingdom Securities Ltd was registered as a Discount House under Banking Act Chapter 188 on 25th July 1995. Kingdom Stockbrokers was registered with the Zimbabwe Stock Exchange under ZSE Chapter 195 on 1st August 1995. The pre-licensing trading had generated good revenue but they nevertheless had a 20% deficit of the required capital. Most institutional investors turned them down as they were a greenfield company promoted by people perceived to be “too young”. At this stage National Merchant Bank, Intermarket and others were on the market raising equity and these were run by seasoned and mature promoters. However Rachel Kupara, then MD for Zimnat, believed in the young entrepreneurs and took up the first equity portion for Zimnat at 5%.
Norman Sachikonye, then Financial Director and Investments Manager at First Mutual followed suit, taking up an equity proportion of 15%. These two institutional investors were inducted as shareholders of Kingdom Securities Holdings on 1st August 1995. Garmony Investments ceased operations and reversed itself into Kingdom Securities on 31st July 1995, thereby becoming an 80% shareholder.
The first year of operations was marked by intense competition in addition as discrimination against new financial institutions by public organisations. All the other operating units performed well except for the corporate finance department with Kingdom Securities, led by Purohit. This monetary loss, differing spiritual and ethical values led to the forced departure of Purohit as an executive director and shareholder on 31st December 1995. From then the Kingdom started to grow exponentially.
Nigel and his team pursued an aggressive growth strategy with the intention of increasing market proportion, profitability, and geographic spread while developing a strong brand. The growth strategy was built around a business philosophy of simplifying financial sets and making them easily easy to reach to the general public. An IT strategy that produced a low cost delivery channel exploiting ATMs and POS while providing a platform that was ready for Internet and web-based applications, was espoused.
On 1st April 1997, Kingdom Financial sets was licensed as an accepting house focusing on trading and distributing foreign money, treasury activities, corporate finance, investment banking and advisory sets. It was formed under the leadership of Victor Chando with the intention of becoming the merchant banking arm of the Group. In 1998, Kingdom Merchant Bank (KMB) was licensed and it took over the assets and limitations of Kingdom Securities Limited. Its main focus was treasury related products, off-balance sheet finance, foreign money and trade finance. Kingdom Research Institute was established as a sustain service to the other units.
The entrepreneurial bankers, cognisant of their limitations, sought to unprotected to basic mass quickly by actively seeking capital injection from equity investors. The aim was to enlarge ownership while lending strategic sustain in areas of mutual interest. An attempt at equity uptake from Global Emerging Markets from London failed. However in 1997 the efforts of the bankers were rewarded when the following organisations took up some equity, reducing the shareholding of executive directors as shown below: ïEUR Ipcorn 0.7%, ïEUR Zambezi Fund Mauritius P/L 1.1%, ïEUR Zambezi Fund P/L 0.7%. ïEUR Kingdom Employee proportion Trust 5%, ïEUR Southern Africa Enterprise Development Fund – 8% redeemable preference shares amounting to US$1,5m as the first investee company in Southern Africa from the US Fund initiated by US President Bill Clinton, ïEUR Weiland Investments, a company belonging to Mr Richard Muirimi, a long standing friend of Nigel and associate in the fund management business took up 1.7%, Garmony Investments 71.7% -executive directors. ïEUR After a rights issue Zimnat fell to 4.8% while FML went down to 14.3%.
In 1998, Kingdom launched four Unit Trusts which proved very popular with the market. Initially these products were focused at individual clients of the discount house in addition as private portfolios of Kingdom Stockbroking. Aggressive marketing and awareness campaigns established the Kingdom Unit Trust as the most popular retail brand of the group. The Kingdom brand was consequently born.
Acquisition of Discount Company of Zimbabwe (DCZ)
After a spurt of organic growth, the Kingdom entrepreneurs decided to hasten the growth rate synergistically. They set out to acquire the oldest discount house in the country and the world, The Discount Company of Zimbabwe, which was a listed entity. With this acquisition Kingdom would acquire basic competences in addition as unprotected to the much desired ZSE listing inexpensively by a reverse listing. Initial efforts at a negotiated merger with DCZ were rebuffed by its executives who could not countenance a forty year old institution being swallowed up by a four year old business. The entrepreneurs were not deterred. Nigel approached his friend Greg Brackenridge at Stanbic to finance and effect the acquisition of the sixty percent shares which were in the hands of about ten shareholders, on behalf of Kingdom Financial Holdings but to be placed in the ownership of Stanbic Nominees. This strategy masked the identity of the acquirer. Claud Chonzi, the National Social Security Authority (NSSA) GM and a friend to Lysias Sibanda (a Kingdom executive director), agreed to act as a front in the negotiations with the DCZ shareholders. NSSA is a well known institutional investor and hence these shareholders may have believed that they were dealing with an institutional investor. Once Kingdom controlled 60% of DCZ, it took over the company and reverse listed itself onto the Stock Exchange as Kingdom Financial Holdings Limited (KFHL). Because of the negative real interest rates, Kingdom successfully used debt finance to structure the acquisition. This acquisition and the later listing gave the once despised young entrepreneurs confidence and credibility on the market.
Other Strategic Acquisitions
Within the same year Kingdom Merchant Bank acquired a strategic stake in CFX Bureau de Change owned by Sean Maloney in addition as another stake in a greenfield microlending franchise, Pfihwa P/L. CFX was changed into KFX and used in most foreign money trading activities. KFHL set as a strategic intention the acquisition of an additional 24.9% stake in CFX Holdings to safeguard the initial investment and ensure management control. This did not work out. Instead, Sean Maloney opted out and took over the failed Universal Merchant Bank licence to form CFX Merchant Bank. Although Kingdom executives continue that the alliance failed due to the abolition of bureau de change by government, it appears that Sean Maloney refused to give up control of the additional shareholding sought by Kingdom. It consequently would be reasonable that once Kingdom could not control KFX, a fall out ensued. The liquidation of this investment in 2002 resulted in a loss of Z$403 million on that investment. However this was manageable in light of the strong group profitability.
Pfihwa P/L financed the informal sector as a form of corporate social responsibility. However when the hyperinflationary ecosystem and stringent regulatory ecosystem encroached on the viability of the project, it was wound up in early 2004. Kingdom pursued its financing of the informal sector by MicroKing, which was established with international assistance. By 2002 MicroKing had eight branches located in the midst of, or near, micro-enterprise clusters.
In 2000, due to increased activity on the foreign money front within the banking sector, Kingdom opened a private banking facility by the discount house to adventure revenue flows from this market. Following market trends, it engaged the insurance company AIG to go into the bancassurance market in 2003.
Meikles Strategic Alliance
In 1999 the entrepreneurial Chanakira on advice from his executives and the mythical corporate finance team from Barclays bank led by the affable Hugh Van Hoffen entered into a strategic alliance with Meikles Africa whereby it injected some Z$322 million into Kingdom for an equity shareholding of 25%. Interestingly, the deal nearly collapsed on pricing as Meikles only wanted to pay $250 million whilst KFHL valued themselves at Z$322 million which in real terms was the largest private sector deal done between an native bank and a listed corporate. Nigel testifies that it was a walk by the incomplete Celebration Church site on the Saturday preceding the signing of the Meikles deal that led him to sign the deal which he saw as a method for him to sow a whopping seed into the church to raise the Building Fund. God was faithful! Kingdom’s proportion price shot up dramatically from $2,15 at the time he made the commitment to the Pastor all the way to $112,00 by the following October!
In return Kingdom acquired a powerful cash-high shareholder that allowed it entrance into retail banking by an inventive in-store banking strategy. Meikles Africa opened its retail branches, namely TM Supermarkets, Clicks, Barbours, Medix Pharmacies and Greatermans, as dispensing channels for Kingdom commercial bank or as account holders providing deposits and requiring banking sets. This was a cheaper way of entering retail banking. It proved useful during the 2003 cash crisis because Meikles with its enormous cash resources within its business units assisted Kingdom Bank, consequently cushioning it from a liquidity crisis. The alliance also raised the reputation and credibility of Kingdom Bank and produced an opportunity for Kingdom to finance Meikles Africa’s customers by the jointly owned Meikles Financial sets. Kingdom provided the funding for all lease and hire purchases from Meikles’ subsidiaries, consequently driving sales for Meikles while providing easy lending opportunities for Kingdom. Meikles managed the relationship with the client.
Meikles Africa as a strategic shareholder assured Kingdom of success when recapitalisation was required and has enhanced Kingdom’s brand image. This strategic relationship has produced powerful synergies for mutual assistance.
Exploiting the opportunities arising from the strategic relationship with Meikles Africa, Kingdom made its debut into retail banking in January 2001 with in-store branches at High Glen and Chitungwiza TM supermarkets. The target was principally the mass market. This rode on the strong brand Kingdom had produced by the Unit Trusts. In-store banking offered low cost delivery channels with minimal investment in brick and mortar. By the end of 2001, thirteen branches were operational across the country. This followed a deliberate strategy for aggressive roll-out of the branches with two flagship branches ïEURïEUR one in Bulawayo and the other in Harare. There was a huge emphasis on an IT pushed strategy with meaningful cross-selling between the commercial bank and other SBUs.
However, it was further discovered that there was a market for the upmarket clients and hence Crown banking outlets were established to diversify the target market. In 2004, after closing three in-store branches in a rationalization exercise, there were 16 in-store branches and 9 Crown banking outlets.
The entrance into commercial banking was probably held at the wrong time, considering the imminent changes in the banking industry. Commercial banking does provide cheap deposits, however at the price of huge staff costs and human resource management complications. Nigel concedes that, with hindsight, this could have been delayed or done at a slower speed. However, the need for increased market proportion in a fiercely competitive industry necessitated this. Another reason for persisting with the commercial banking project was that of prior agreements with Meikles Africa. It is possible that Meikles Africa had been sold on the equity take-up deal on the back of promises to include in in-store banking, which would increase revenue for its subsidiaries.
inventive Products and sets
KFHL continued its aggressive pursuit of product innovation. After the failure of the KFX project, CurrencyKing was established to continue the work. However this was abolished in November 2002 by government ministerial intervention when bureau de change were extremely in an effort to stamp out similar market foreign money trading.
Sadly this governmental decision was misguided for not only did it fail to banish foreign money similar trading but it drove underground, made it more lucrative and afterward the government lost all control of the management of the exchange rate.
In October 2002, KFHL established Kingdom Leasing after being granted a finance house licence. Its mandate was to adventure opportunities to trade in financial leases, lease hire and short term financial products.
Around 2000 it became apparent that the domestic market was highly competitive, with limited prospects of future growth. A decision was made to diversify revenue flows and reduce country risk by penetration into the regional markets. This strategy would adventure the proven competences in securities trading, asset management and corporate advisory sets from a small capital base. consequently the entrance had low risk in terms of capital injection. Considering the foreign exchange control limitations and shortage of foreign money in Zimbabwe, this was a prudent strategy but not without its downside, as will be seen in the Botswana venture.
In 2001, KFHL acquired a 25.1% stake in a greenfield banking enterprise in Malawi, First Discount House Ltd. To safeguard its investment and ensure managerial control, an executive director and dealer were seconded to the Malawi venture while Nigel Chanakira chaired the Board. This investment has continued to grow and provide positive returns. As of July 2006 Kingdom had finally managed to up its stake from 25,1% to 40% in this investment and may ultimately control it to the point of seeking a conversion of the license to a commercial bank.
KFHL also took up a 25% equity stake in Investrust Merchant Bank Zambia. Franky Kufa was seconded to it as an executive director while Nigel took a seat on the Board.
KFHL had been promised an option to gain a controlling stake. However when the bank stabilized, the Zambian shareholders entered into some questionable transactions and were not prepared to allow KFHL to up it’s stake and so KFHL decided to pull out as relationships turned frosty. The Zambian Central Bank intervened with a potential to grant KFHL its own banking license. This did not materialize as the Zambian Central Bank exploited the banking crisis in Zimbabwe to deny KHFL a licence. A reasonable premium of Z$2.5 billion was obtained at disinvestment.
In Botswana, a subsidiary called Kingdom Bank Africa Ltd (KBAL) was established as an offshore bank in the International Finance Centre. KBAL was intended to spearhead and manage regional initiatives for Kingdom. It was headed by Mrs Irene Chamney, seconded by Lysias Sibanda with the concurrence of Nigel after managerial challenges in Zimbabwe. Two other senior executives were seconded there. She successfully set up the KBAL’s banking infrastructure and had good relations with the Botswana authorities.
However, the business form chosen of an offshore bank ahead of a domestic Botswana merchant bank license turned out to be the Achilles heel of the bank more so when the Zimbabwe banking crisis set in between 2003 and 2005. There were basic differences in how Mrs Chamney and Chanakira saw the bank surviving and going forward.
Ultimately, it was deemed prudent for Mrs. Chamney to leave the bank in 2005. In 2001 KFHL acquired the mandate as the only distributor of the American Express card in the whole of Africa except for RSA. This was handled by KBAL. Kingdom Private Bank was transferred from the discount house to become a subsidiary of KBAL due to the prevailing regulatory ecosystem in Zimbabwe.
In 2004 KBAL was temporarily placed under curatorship due to undercapitalisation. At this stage the parent company had regulatory constraints that prevented foreign money capital injection.
A solution was found in the sourcing of local partners and the move of US$1 million before realised from the proceeds of the Investrust liquidation to Botswana. Nigel Chanakira took a more active management role in KBAL because of its huge strategic significance to the future of KFHL. Currently efforts are underway to acquire a local commercial bank licence in Botswana in addition. Once this is acquired there are two possible scenarios, namely maintaining both licences or giving up the offshore licence.
The interviewees were divided in their opinion on this. However in my view, judging from the stakeholder strength involved, KFHL is likely to give up the off shore banking licence and use the local Kingdom Bank Botswana (Pula Bank) licence for regional and domestic expansion.
The staff supplement grew from the initial 23 in 1995 to more than 947 by 2003. The growth was consistent with the growing institution. It exploded, especially during the set afloat and expansion of the commercial bank. Kingdom from inception had a strong human resourcing strategy which entailed meaningful training both internally and externally. Before the foreign money crisis, employees were sent for training in such countries as RSA, Sweden, India and the USA. In the person of Faith Ntabeni Bhebhe, Kingdom had an vigorous HR driver who produced powerful HR systems for the emerging behemoth.
As a sign of its commitment to building the human resource capability, in 1998 Kingdom Financial sets entered a management agreement with Holland based AMSCO for the provision of seasoned bankers. by this strategic alliance Kingdom strengthened its skills base and increased opportunities for skills move to locals. This helped the entrepreneurial bankers create a substantial managerial system for the bank while the seasoned bankers from Holland compensated for the youthfulness of the emerging bankers. What a foresight!
In-house self-paced interactive learning, team building exercises and mentoring were all part of the learning menu targeted at developing the human resource capacity of the group. Work and job profiling was introduced to best match employees to appropriate posts. Career path and series planning were embraced. Kingdom was the first entrepreneurial bank to have smooth unforced CEO transitions. The founding CEO passed on the baton to Lysias Sibanda in 1999 as he stepped into the role of Group CEO and board deputy chair. His role was now to pursue and spearhead global and regional niche financial markets. A few years later there was another change of the guard as
Franky Kufa stepped in as Group CEO to replace Sibanda, who resigned on medical grounds. One could argue that these smooth transitions were due to the fact that the baton was passing to founding directors.
With the explosive growth in staff supplement due to the commercial bank project, culture issues emerged. consequently, KFHL engaged in an enculturation programme resulting in a culture dramatical change dubbed “Team Kingdom”. This culture had to be strengthened due to dilutions by meaningful mergers and acquisitions, meaningful staff turnover because of increased competition, emigration to greener pastures and the age profile of the staff increased the risk of high mobility and fraudulent activities in collusion with members of the public. Culture changes are difficult to effect and their effectiveness already harder to estimate.
In 2004, with a high staff turnover of around 14%, a compensation strategy that ring fenced basic skills like IT and treasury was implemented. Due to the low margins and the financial stress experienced in 2004, KFHL lost more than 341 staff members due to retrenchment, natural attrition and emigration. This was permissible as profitability fell while staff costs soared. At this stage, staff costs accounted for 58% of all expenses.
Despite the impressive growth, the financial performance when inflation modificated was average. truly a loss position was reported in 2004. This growth was severely compromised by the hyperinflationary conditions and the restrictive regulatory ecosystem.
This article shows the determination of entrepreneurs to push by to the realisation of their dreams despite meaningful odds. In a later article we will tackle the challenges faced by Nigel Chanakira in solidifying his investments.