Absa Kenya bets big on mass market for growth

Saturday May 11 2024

Abasa Bank Kenya CEO Abdi Mohamed (L) with Chief Finance Officer Yusuf Omari during a recent media briefing at Norfolk Hotel in Nairobi, Kenya. PHOTO | FILE | NMG


Absa Bank Kenya is refocusing its resources towards strengthening the retail business, as competition for the low-end part of the market deepens among lenders seeking to grow profit margins and expand customer base.

Multinational banking giants, which previously thrived on doing business with corporates and high networth individual clients, have been tweaking their operating models in favour of retail customers.

“We have opted to pursue scale as a strategic approach as opposed to serving a niche customer base,” Absa said in its latest integrated annual report (2023).

“Over the years, we have built a strong franchise that was focused on niche customers with specialised products and services that were tailored to their needs, but our new focus will cascade our capabilities to pursue a wider breadth of customers than usual. This new approach will result in greater focus on mass markets and building the capabilities to solution broader segments,” the report said.

Read: Lenders scramble for struggling micro lenders’ customers

Last year, Absa Kenya, a subsidiary of South Africa’s Absa Group, affirmed its commitment to supporting MSMEs by announcing Ksh100 billion ($751.87 million) to support the growth of this business segment.


This came at a time when Kenya’s MSMEs were contending with a challenging operating environment marked by high inflation, increasing interest rates, the impact of the Russia-Ukraine war, the Gaza conflict and elevated taxation as per the Finance Act of 2023, and other factors.

The retail banking model has boosted the non-funded incomes for the likes of Equity Group and KCB Bank. It revolves around high volume, low margin operations targeting the low-income segment of the population.

Absa Bank Kenya, Standard Chartered Bank and Stanbic Bank are rapidly adopting the new growth model by diversifying into retail business.

African banking giants such as Nigeria’s Access Bank Plc, United Bank for Africa and Egyptian Commercial International Bank are also angling for the region’s retail market in the country.

Read: Egyptian lender reviews growth plan for Kenya

A study by McKinsey & Company in 2018 predicted that the mass market would be the next growth frontier for banks in Africa.

But how fast Africa’s retail banking penetration increases in the years ahead, will depend on how bold banks are in innovating, said the study titled “Roaring to life: Growth and innovation in African retail banking.”

The study notes that 70 percent of the growth in Africa’s retail banking revenue pools to 2025 will come from the middle segments, defined as individuals with annual income between $6,000 and $36,000 and the mass market – individuals earning less than $6,000 per annum –will account for just 13 percent of this revenue-pool growth, but it is the fastest-growing segment.