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Editor’s Note Hello & Welcome to White Collar! On this issue we cover investment banking through the eyes of a start-up trying to innovate in this space and an up and coming institution that’s becoming a market leader in Africa. Investment banking can be defined as a specific division of banking related to the creation of capital for other companies, governments and other entities. Warren Buffet, an incredible investor once said, “Risk comes from not knowing what you’re doing.” Despite this we take into account what it means to be so good at investing that you’re risk averse and every investment you make is almost certain to be fruitful. They say that it takes 4 years to learn a trade and 3 years to become good at it. If this is any measure of expertise then Warren is an absolute expert in his field. On this issue we show you what the learning curve is truly like for an entrepreneur and what happens when that transitions to expert level work. We try and interrogate the broad spectrum of reasons behind what drives investment, most of which are linked to some kind of security that comes from having an extra source of revenue. Through the stories told here in, we touch on risk management, adaptability, financial freedom and so much more.


Michael Kiruthi, Esq Daniel Kathare Ian Macharia Kyama Kivuva

Let us know what you think about the investment conversation, we love hearing back from you across our social media platforms.

Kyama Kivuva





e’ve been grappling with this question for a long time. Philosophers throughout history have tried their hand at various interpretations of this thought. King Solomon noted that, “A feast is prepared for laughter and wine maketh merry: but money answereth all things.” A more recent account of people voicing this idea came in the TV show ‘Desperate Housewives’. Gabby (Eva Longoria) was talking to a nun who insisted that Money can’t buy happiness and she snapped back saying, “Sure it can, that’s just a lie we tell poor people to keep them from rioting.” People crave a sense of uniqueness. We all want to be special and we go to different lengths to express this fact. Be it in the way that we dress, the hairstyles that we get or unique identifiers like tattoos and piercings that some people use to tell stories about themselves. All of these are measures of uniqueness, and so is money; More specifically how people choose to spend it.

What Does Money Offer You? As an Individual: Influx of recurring cash has certain implications on an individual. The first step is an increased sense of freedom. A freedom to purchase better quality goods and experiences.




This combination of changes improves the individual’s quality of life. And change’s the individual’s perspective. The increased purchasing power causes the individual to begin to associate with a different social class of individuals. “You make money, you meet other people who make money.” Said Kevin Hart. Does this make the individual happier? Yes, but there’s no sense of permanence to this happiness because as soon as the individual settles into their new life, their perspective changes and they look up to those in a better position than them and begin to want that. A study by Ada Ferrer-i-Carbonell looking at data on life satisfaction concludes that there is an asymmetry in the way that people compare themselves with others. People focus on those who they think are better than them rather than those who are at the same position. She also found that when the position of others improves either financially or socially, people react negatively, but when ours improves we shift our point of reference to those who are better off. Satisfaction is illusive. This might be the driving force behind ambition that causes people to keep reaching higher and higher, which drives growth on a personal and communal level.

Families also break apart where there is financial development. Case in point, the predominantly Muslim community of Garissa, Kenya. The economic ecosystem of the North eastern region of Kenya has progressively gotten better as a result of increased youth and women’s groups that are taking part in small scale businesses. This increased financial freedom has provided more options for people stuck in failing relationships and as a result the rate of divorce in the North eastern part of the country have shot up dramatically. In the past, a heavy financial responsibility forced unhappy households to stick together in order to share the financial burden. Now with this financial freedom, more options become

...with this financial freedom, more options become available and people can decide to pursue happiness

As a Community: “When you open the window, both fresh air and flies come in,” said Deng Xiaoping, describing the good and bad consequences of the opening of China’s economy. People see economic growth as something that’s desirable because it means improved quality of goods and services like, infrastructure and education. However, on the flip side, there are certain things that we need to consider. Families break apart when individuals go out in search of work or a better life.


available and people can decide to pursue happiness apart, which isn’t ideal but is better than the option of being stuck in failing or abusive relationships. In a study to try and understand the effects of increased income on a larger scale, the Busara Centre of Behavioural Economics in Nairobi set up a continuous experiment that featured a lottery like scheme where participants in both rural areas and urban slums receive an average of about $357. They sampled about 503 households spread across 120 villages. The researchers monitored the well-being of villagers before and after receiving the money. They used questionnaires that would help determine people’s level of life satisfaction and clinical depression and saliva tests for cortisol a hormone associated with stress. The study was intended to mimic



real world scenarios where wealth is distributed unevenly. As expected, those who received the transfer reported greater satisfaction after the money arrived and the saliva tests showed reduced cortisol levels which pointed to reduced stress and depression. For those who did not receive any money, the satisfaction levels fell sharply especially for those who watched their neighbours receive money. Watching ones one’s neighbour’s wealth increase by any amount elicited a greater dissatisfaction than the satisfaction that came from receiving the same amount of money. The bigger the handouts the greater the dissatisfaction for non-recipients, however these hand-outs did not seem to have any impact on cortisol levels or the prevalence of depression in nonrecipients.


In the New York Times conversation between Jay-Z and Dean Baquet, they stumbled onto the different phases of Jay-Z’s life, what they were like and what they taught him.

Phase 2:His music talked about how rich he was and how impressed with himself he was. Phase 3:“Oh my goodness, the most beautiful things are not these objects. The most beautiful things are inside. They are the friendships I have. You could have all the watches and planes but if you don’t have a friend…” A reminder to look beyond the money and make an active effort to priorities what really matters, people. ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊

Phase 1:His music mirrored his violent life and struggle.


The highs and lows of emotion produced over the course of the study were ephemeral and faded as soon as the individuals got used to them, a phenomenon economists refer to as “Hedonic Adaptation”. These money transfers were made and completed within 6 months, if it were done over a much longer period to mimic economic development is a country, the outcome might have been different. Within a year, the highs and lows experienced by the recipients and non-recipients had returned to almost normal.

One point to note is that, it wasn’t inequality that bothered the nonrecipients, rather it was the decline of their wealth and position relative to the mean-wealth of the village. If just one person got richer and another got poorer, then the village mean wealth would not have changed. Those involved in the study didn’t care so much about this disparity, rather they cared about how everyone as a group was doing relative to their own position.



Why there is sudden surge of popularity in

Islamic Banking T

he global financial system has existed since the 1860s and has grown to influence every other industry today. At the centre of this system is a beating heart made up of banking institutions. This is an elaborate network of financial markets comprised of retail and private banking, capital markets, financial regulators, and payment service providers. Running parallel to this extensive system is the Islamic financial system, so you would be forgiven if you’ve never heard of it. The Astana International Financial Center describes Islamic finance as a system of “…financing and banking that abides by Sharia Law”. This emerging global


industry started around 1950 after much agitation by Islamic scholars and activists. It led to the creation of finance institutions that essentially charged no interests on their products and services, kick starting a system based on Islamic economics. Today, the global Islamic finance industry is estimated to be holding assets of over $2 trillion. There are more than 500 Islamic finance institutions worldwide in almost 80 countries. In addition to this, it has an annualized growth of 10%, putting firmly among the best performing markets in the world. This impressive development, coupled with the exponential increase in the wealth of Muslim investors in the Gulf countries, has also



encouraged the establishment of an Islamic capital market that caters for Sharia-compliant securities. About a quarter of the Islamic finance industry is tied to this capital market.

Why the Sudden Popularity The Islamic finance system isn’t simply about interest-free banking and financing. The Sharia code of conduct as applied to the system largely regulates ethical and moral issues in finance. Its proponents contend that, not only is it more economically efficient compared to the conventional system, but it also espouses higher economic equity and social justice. Indeed, the conventional banking industry has been embroiled in several ethical issues over the years. Banks have become less and less transparent in how they invest their resources, the way they design, promote and implement their products and services. As these banks skirt the edges of ethical regulations, several have gone into bankruptcy and even dragged the entire industry to the brink of complete collapse. A good example is the financial crisis of 2009. Which was caused by excessive securitization and leveraging. Since then, people have


sought more ethical, inclusive, and socially responsible finance models. Money is important. It implies ability, it makes things happen, and begets more money. This makes it one of the most important commodities in modern times. Since banks are the de facto intermediaries of money, it is only natural that we interrogate how these banks handle money. In recent years, governments and regulators have sought to increase regulations on banks to discourage and prevent bad behaviour by risk loving banks. Such checks and balances already exist in Islamic finance through its compliance with Sharia, making it a more stable and responsible financial system. This is the main reason for the recent attraction to this emerging industry.

How it Works

Islamic finance is based on equity participation models. This means part ownership in an investment.

• Islamic banking and finance are guided by the values of Islamic law called Sharia. • There is no interest (riba) of any form because Sharia prohibits any payment of charges on rented money. • Qart al-Hasan- interest-free loan, given benevolently (ihsan).



• Investments related to pork, alcohol, tobacco, or products with high uncertainty such as gambling firms are forbidden (haram).

• Wakala- a contract of agency, that is, giving rights to a third party to manage an asset, investment or accounts.

• Any financial contracts must avoid creating debt and any investment risk must be shared between the financier and investor.

• Wadia- the system of commercial banking in Islamic finance. It is a contract where a person hands over property for safeguarding.

• Customers share profits with the bank under what is known as mudarabah. However, in the event of a loss, only the investor losses money, but is exempt from paying handling fees.

• Hiwala- a contract for the transfer of debt from one person to another. It is used for money remittance in Islamic finance.

• In joint ventures, the investor and financier share both profits and losses. This is called musharaka. • Murabaha- allows a customer to purchase a commodity from an Islamic finance institution and pays its cost and profit margin through deferred payments. This avoids taking an interest-paying loan. • Salam- a forward contract, that is, a buyer makes payments today for the future delivery of a good. • Istisna- a forward sale contract where an Islamic institution makes a purchase on a client’s behalf to deliver at an agreed future date. The asset to be delivered is often one that takes time to construct or manufacture. • Sukuk- a Sharia-compliant bond. This is the biggest segment in Islamic finance, reported to be worth $95 billion in 2017 by Moody’s rating agency.

• Kafala- accepting liability for another person’s debt obligation. A guarantee. • Rahn- putting up property as collateral against a financial liability.

Differences with Conventional Banking Functionally, Islamic finance does not differ from the conventional system. Indeed, the purpose of the two systems is similar; they all cater for the financial needs of their customers. However, compliance with Sharia law makes the two systems differ in a number of ways:

• Takaful- Islamic insurance system based on pooling funds for mutual assistance.




• Oversight: Islamic institutions are governed by a Sharia board, which constitutes of Islamic scholars. Financial dealings are often inherently complicated, and require the expertise of interpreters of Sharia to remain in compliance with Islamic law. • The conceptualization of money, wealth and financial transactions: Islamic institutions are strict adherents to Islamic business law. Under these regulations, they perpetuate the belief that God (Allah) is the owner of all wealth and people are simply trustees. As such, the pursuit for money must be balanced with spiritual needs. Similarly, the promotion of justice through economic activities is observed.

who know a little about Islamic finance are mainly aware of the “no interests on loans” part. Of course this is one distinguishing feature that has made Islamic finance some fair share of popularity. Unlike the capitalistic model that the rest of the world lives by, that is, the time value of money, Islamic finance doesn’t believe that money gains value simply because time has passed. You must have loaned your friends or family a “little” money at one point in your life. Did you charge them interest on it? Did you feel like your money had earned value? Or did they simply owe you the amount you’d lent out? If your answer was no in the first two questions and yes in the last, then congratulations, you’ve been practicing Islamic finance! Somewhat, at least. Islamic finance is based on equity participation models. This means part ownership in an investment. For example, if the bank loans you money to invest in your business or other form of investment, it is entitled to a share of your profits on top of the principal amount. So in case of a loss, the bank will, similarly, not benefit. In commercial banking, the banks use customers’ deposits to invest, then the profits are shared between the institution and depositors.

Despite the high growth, there is need for industry stakeholders and shareholders, regulators and Islamic institutions to sensitize the public and governments regarding Islamic finance. • The relationship between clients and institutions: every engagement between a customer and the bank is based on a specific Islamic contract, as opposed to the creditor-lender relationship of conventional institutions. • Profit and Loss: the concept of investment is heavily based on good faith, so in the event of financial losses, nobody is liable to pay the initial investment or any returns agreed upon.

How do Islamic Institutions make Money? You may be wondering how a financial institution earns money if it doesn’t charge any interests. Indeed, those


Should you switch to Islamic Finance? The UK became one of the first non-Muslim countries to start issuing Islamic bonds in 2013. Today, many nonMuslims bank with retail banks in the country. Locally, the Kenyan Islamic finance market is a little over a decade old. Barclays Bank was the first to make foray into the market, followed by KCB Bank in 2006. This paved the way for the Islamic banks, First Community



Bank and Gulf African Bank, to become players in the Kenyan economy. Recently, other Islamic financial service providers have shown confidence in the country; Takaful Insurance Africa and Dubai Islamic Bank have launched operations locally. Even Savings and Credit Cooperative Organisations are now offering their members Shariacompliant products. While Islamic finance institutions offer Muslims the opportunity to practice their faith even in their use of money, non-Muslims can also benefit. The Islamic system complements the conventional system and allows all customers a choice for alternative model of finance, especially in the current debt economy. Customers would no doubt want a financial system that heavily considers socio-economic welfare factors when it comes to its customers.

this new industry, other difficulties have developed. There aren’t enough professionals to work in the industry, making investment in the market an expensive undertaking because the institutions are forced to train workers.

giants. The Accounting and Auditing Organisations of Islamic financial Institutions is currently working to merge Sharia compliance with western finance regulations. The next decade of Islamic finance growth will no doubt be interesting

Despite the high growth, there is need for industry stakeholders and shareholders, regulators and Islamic institutions to sensitize the public and governments regarding Islamic finance. They will need to invest more in human resource as well as diversify their portfolio of services to widen the pool of customers. Additionally, other areas of finance such as cost and risk management have to be well defined before Islamic finance takes root in western economies. As the industry expands globally, it is bound to face stiff challenges in competing with wellestablished conventional financial

Challenges The growth of Islamic financial institutions has outstripped the pace of regulations in many countries. This has stifled their growth because Sharia financial compliance has not been harmonized with the current capitalistic regulations. Additionally, in the absence of the appropriate legal and regulatory frameworks for




So who is Pius Muchiri? It's a good question. Thank you so much for having me! ‘Who am I?’ It's a question that you have to ask yourself every day!I am just a humble guy, born-again Christian, who wants to make a difference… and also very passionate about investing.


I believe that my personal calling is to democratize investment; to make investment available to everybody and break the vicious cycle of poverty especially here in Africa. That's what we do here at Nabo Capital!






Let's talk about your childhood. What was it like? Did you enjoy it? I had a great childhood. Very good parents. Thank God they’re still there! I come from a very staunch Christian family… a very loving family. And that has had an impact on the kind of man I’ve become. Life experience is a big cornerstone when looking at how we all turn out. In my case, we started life very well.My dad was a banker but he lost his job at some point and everything changed. Back then, when life was good, my mother used to say, ‘you will never really know what it is to be poor until the day you don’t know where your next meal will come from.’ And that day surely came! It was difficult to pay school fees… We really didn’t know where our next meal would come from.It was a very tough time in our lives as a family.

After some time, about three years later, I wasn’t as convinced that that’s where the answer was. I thought back to when I was in campus, someone had come from the US and told us that Investment was a budding area and encouraged all of us to consider it and I did when an opportunity to join Centum came up in 2004, and that’s how I launched my career in Investment.

I think there's more than just learning that determines where we end up in life. There’s the learning that we do in class and the informal learning as well. How much of an impact has informal learning had on what you’re doing right now? I am where I am because of informal learning! Back when the internet was still very new I stumbled on an online mentor, Jim Rohn… he is now the late, and He remains one of the biggest influences of my life.

What was going through your mind when this change of pace happened? How did it affect the choices that you made?

Jim once said, “Formal education will give you a good living, and informal education will give you a fortune!”

I took it in stride! I’ve reflected on it a lot, actually. I think it's easier to come from a poor background and transition to a rich background than vice versa.

He used to send an email to me every day and I would read it first thing in the morning at 5 am. He had all manner of advice on how you should tackle life.

I had very many questions at that tender age; questions about what really happened and how we ended up in that position.

He helped me develop the appetite to read widely.

I observed a lot of guys who had a fantastic life… Two cars parked outside, living in a nice neighborhood... And something, an event would happen - maybe they’d retire or the job would come to an end - and life would just take a plunge from thereon.


I wanted to figure out why this tends to happen and if it could be prevented? I thought I’d find my answer in accounting and I actively pursued it.

Thanks to him I started implementing the concept of ‘Small Changes, Big Results’ where I’d split my reading time into 15 minute segments and use this time to read on the areas of my life that needed improvement. Jim also helped me to come up with my pillars of success which are: Spiritual health, Family, physical health, mental health, Career, Finances,



Relationships and Legacy. I would read up all these pillars, building on them brick by brick. It’s a continuous process and I’m still working on them to date!

Are there any kind of tips you want to give on Education, Say if the Education CS is reading this right now.

Formal education will give you a good living, and informal education will give you a fortune! -Jim Rohn

It's interesting you touched on education because by extension, Nabo Capital is associated with Centum and Centum is very passionate about education. My personal opinion is that, when it comes to education delivery is what we really need to focus on. Case in point, look at the guys going to the academies and the Ivy League Schools; they did the same calculus that you did, however if you meet them in the office today they may seem better suited in some ways. The difference is how their education was delivered to them. One example of what I mean is SABIS Runda, a school that Centum invested in. SABIS has a 99 percent success rate of sending kids to Ivy League schools. Which is interesting because they are not discriminative about who joins the school. They take everyone,


regardless of aptitude. I’ve taken an interest in understanding how the school operates, and it comes down to how they’ve broken down the concepts from kindergarten all the way to Grade twelve. They leverage on the latest technology to constantly monitor how each and every child is performing and have a system that makes sure no child is lagging behind. The performance of a teacher is literally measured against how well the worst performing student does. That puts the teacher on the side of the students.

So, what was the interview process like at Centum? It was really interesting how the whole thing came together in the first place. A friend of mine just asked for my CV and I reluctantly gave it to him. I didn’t know that she was sending it to Centum. At that point I was working at Toyota East Africa as an accountant. I was still fresh at the company, with less than a year under my belt so I wasn't very sure that I wanted to change jobs but I thought ‘why not give it a try’.The first interview went pretty well and they called me back. Unfortunately, I couldn't make it for the 2nd interview.



(At Toyota we used to have an internal auditor who was more senior than the CEO, and he used to go around the world. On that day, he was in our offices and was auditing my section.) I tried to reschedule the interview but they thought I was not interested and decided to offer the job to someone else. Apparently the person reported on a Monday, worked the whole morning, went for lunch and never came back! Sometime later in the year… around October, I met one of their senior managers. He explained that he was sorry that they didn't call me but they just didn't think I wanted the job. He mentioned that they had decided to do fresh interviews and that they still had my contacts. True to his word, the following week they called me and I reported. I was interviewed in the office by the then CEO, Peter Mwangi, and we spoke a lot about cars and many other things apart from the job itself. And when he said that we were done, I could barely believe it. Apparently, he had already made up his mind! He wrapped up the interview saying “It's not just about the technical competence, it’s about


the attitude.” They were looking for someone who would fit the job and be part of a team and he thought that I would be a good fit. He gave me the chance and I jumped straight into it. I really liked the people who were there…. James Mworia was there, David Owino was there… Risper Alaro as well. Even before I joined the company the way these people lived their lives was already challenging me in every aspect. I had done my homework on who all these people were and I thought that they were a great bunch of guys. I joined them in late 2004… It’s been 14 years and I can’t explain how quickly time has passed but it's been very exciting!

So these 14 years go by. You were a young man, now you're getting older… wiser. You decide to start-up Nabo Capital. What pushed you to make this move? So when James Mworia took over as CEO in 2008, he kicked off with Centum 2.0 Strategy in 2009. We did a couple of things: Number one, we unbundled the portfolio. Whereas before we used to manage all of the types of assets in one basket, we said let's have a private equity portfolio with a dedicated team, the same for public market and same for real estate. And over that period of time, from 2009 to 2014, we had very remarkable success and that triggered something; people were coming to us and asking, “How can we participate on this on this track record without necessarily buying the Centum share?” So Centum being a listed company, the only way it could accommodate other people's money was by forming an outfit outside of itself that would be regulated by the Capital Markets Authority (CMA). This happened around 2013-2014. That’s when we incorporated Nabo Capital. Nabo means number one in Maasai language, which reflects our aspiration in Africa. My team and I spanned out of Centum in 2013, branded the outfit, formulated the strategy, and began our journey of replicating our



successes at Centum, this time for third party clients. And that's what we've been doing until today. We’ve been managing institutional and ultra-high net worth clients.

How does that translate to the way that you lead at Nabo Capital? When we were spinning off into Nabo Capital, we decided that as we grow big we also need to grow small. When I joined Centum we were just about 14. Today I have a team that is almost equal to that; I have a team of about 15 people. And the Centum culture, that anchored our successes, has transcended into Nabo Capital; entrepreneurial, engaging, bold, willing to push boundaries, and very result-oriented. I have had to also give my team the same opportunities that I was given. I give them the space to learn, make mistakes, correct and grow. When we started Nabo Capital, I was the one who was traveling all across Africa in search for opportunities. Today, I’ve taught others under me who now also travel across the continent to look for opportunities for our clients. I trust every member of the team.

Trust is a very tricky subject. And for someone who is trying to democratize this investment… why should anyone trust you? That is a good question. First and foremost, trust cannot be based on corporate values. It needs to be based on some deep grounded personal values. So I like asking people, “When you say you are a man/ woman of integrity, where is this integrity coming from?” For us, the integrity is key and you can see it in our corporate DNA. I'm a born-again Christian, I've been for many years, and that is the person that I bring to the office. The authentic me. Those biblical principles


inform our interactions with each other as well as our interactions with our clients. I find that to be very important and real. We’re also very careful about who we recruit to join us. You need to be a man of integrity, or a woman of integrity, in your own personal capacity. We've been very fortunate. We've never had a case of fraud over for the last 14 years. I can only narrow it down to great personal and corporate values and a robust incentivize program that aligns the interests of the shareholders, directors and management team.

There are a few people reading who don't really believe that faith is enough. Let me ask it in this way: What’s your track record been? Also what is your relationship like with the Capital Markets Authority (CMA)? We are regulated by the Capital Markets Authority. In fact, leave alone Nabo. Centum was listed from day one, since 1967. That made it very easy for us when we spinned-off and formed Nabo Capital. In fact, some of the most interesting feedback that I’ve gotten from the regulator is that our processes, documentation and audit trail has been impressive compared to what they usually see in a other emergent licensees. We have been investing for over 50 years as a Centum Group. We've invested in real estate, in private equity and public markets over those years. We've made mistakes, learnt many lessons, corrected and continued refining our craft. We’ve had many very many wins and our track record speaks for itself. Our investment process, culture and philosophy are proven by a track record that stands out among the



best in the continent.

When you're looking at the market, how do you determine what to invest in? Again, our heritage is very rich and we have learnt very many lessons. We came up with a philosophy that we call “the 4 Ps,” as a guideline on what kind of companies should pass through our filter. The first one is Partner. We have learnt the hard way over the years, there is nothing as important as investing alongside a strategic partner. What do I mean by a strategic partner? This is an institution that is specialized in doing that kind of business. So we see ourselves as financial investors, not strategic investors. Number two, we look at Profit. When I say profit, I do not mean accounting profit but economic profit. We ask ourselves “If I put one million shillings in this black box (company) what is likely to come out?” We always prefer companies that have a higher return than their cost of capital. That spread, between the return and cost of capital, is the one thing that gives us confidence that they have a viable business model and they know what they are doing. There are very many companies that we come across, which have survived over many years, but they are actually destroying wealth.

and say it is not good enough to have a good partner and a decent history of positive economic profit. We always ask ourselves “does this company have a future?” We used to have a company some years back called Kodak. We don't see much of it today since the iPhone came around. Now everybody is taking photos using their phones. If one invested in Kodak based on their past successes you would have missed the big changes in the future and destroyed wealth. We try our best to identify trends and themes that would have the most impact on companies and wealth creation going into the future. The fourth thing that we look at is Price. We say ‘a good company is not necessarily a good investment and a bad company is not necessarily a bad investment’. You need to put a good company on a weighing scale and ask yourself, ‘considering the prevailing price in the market, is the company overpriced, underpriced or fairly priced?’ We prefer to go into

Number three, we look at potential




underpriced companies, and at worst, a fairly priced company if it has good prospects. So that is what we generally look for. And because of our private equity background, we tend to go unusually deep in our research. We will do a lot of work, do all the channel checks, speak to their suppliers, speak to the people who are connected with that business and really put together a mosaic that can help us to make an opinion that we can stand behind.

What kind of year-to-year returns do you get? We have different asset classes. We've become known more to be equity investors. If you look at our portfolio that we run for Centum, which we’re allowed to speak publicly about; we had an average return of about 17.4 percent on the dollar over the last 9 years. That portfolio invests across Africa, save for South Africa. And that return was at some point about 29 percent, it's just the last five years that have been most difficult, because we’ve had two downturns that have diluted that particular return. I think once markets recover you’ll see that return go back to above 20’s. So we’ve had one of the best track records as far as equity performance across the continent is concerned. On the fixed income side, we also have a good track record. More specifically money market, we have consistently been ranked among the top 5 with returns ranging between 10 and 12 percent.

What missed opportunities do you ref lect on and think, I wish I got that? I think as an investment professional, you will always have missed opportunities. It’s a question of, out of


10 opportunities in the market, can you get the six, seven or eight? I remember Safaricom had a bad time at some point, when Airtel came in and slashed tariffs by 67 percent. That sort of distorted investors’ wealth because it got sliced in one day and that wealth moved to the consumers. That caused a lot of heartache and it took some investors quite a bit to overcome that psychological impact. I can say that we probably would have made more money in Safaricom if we came in much earlier. But I think it's one of the companies that have surprised very many people in the investment world, local and international. If you told people three years ago that Safaricom would touch 30, they would have said, ‘not possible’! But, again, what they've been able to do in terms of innovation and reinventing themselves every time they’ve been faced with stiff competition has really been a great story coming out of Africa.

Let's talk about foreign interests coming to Africa. How should Africans handle themselves better? What advice would you give to policy makers who are in charge these kind of deals? First and foremost, we need foreign direct investment. Africa is in a unique position; we have very glaring gaps. And that's why we register above average GDP growth compared to the developed economies. This glaring gaps are actually opportunities for us to invest in. We are also in a unique position because we have more opportunities than the capital that is here. So the only way that we can close on these opportunities is



by opening up ourselves to foreign direct investments. Now this needs to be done in a disciplined way with the right policies. It needs to be beneficial to our investors who are coming from out there and also to the local communities where this money being poured into. Speaking to governments, I’d say we need to make better deals for ourselves so that we are not an economy where others are extracting profits. We need to make sure that we are negotiating deals which are fair for us and for those who are investing. When I look across the world, and look at some of the capital cities that we would consider to be our


benchmark, look at London, look at New York, look at Paris, Dubai; what they have in common is that they opened themselves up. It's hard to say, when you're in New York, ‘this is a native of New York’, it's hard to say, when you’re in Dubai, ‘this is an Emirati’, because they actually have more immigrants than the locals. We also need to attract people with good skill sets to come into the continent. For a long time, the continent of Africa suffered from brain drain. It's time we also need to attract back, not just our own who have gone out there and become experts in their own fields.

We also need to attract experts from the U.S., from abroad, to come and help us to unlock this potential that we have spoken about for so long. Someone made a joke one day and said that the second most popular name for Nigeria is potential. And I can really relate to that. Ever since I’ve been going to Nigeria, it's always been a story of ‘you cannot afford to miss Nigeria, because Nigeria will not wait for you’. But the realization of that potential has been painfully slow. The potential is there, you just need the right people and the right policies.



What challenges did you face and think, ‘I can’t get past this’? I think there are many challenges. I think for me, my biggest challenge has been really moving Nabo from an idea to a real vibrant organization, which should make value for itself without necessarily piggy backing on Centum. I'd say Centum was a comfort zone for me, because the buck stops with James Mworia but here the buck stops with me. I remember having a chat with James, I was just about to make the move and he told me “Opportunities don't come dressed in convenience.” So you've got to take the opportunity and persist through the challenges that come with execution. The other challenge comes from the fact that I have 15 plus employees and a majority of them are very young people, and they have pegged their careers on me. I constantly ask myself if I can promise these guys a great career, a meaningful career that history can be written about. Another big lesson for me has been knowing when it's time to cut my losses. It's a lesson that I take with me till today, I’ve learnt not to be afraid to cut my losses. If an investment has turned out bad, I am always willing to get out and move on to something



What’s the highest point of your career so far? I think for me, the way I measure my high is with the clients: my clients’ highs are my highs and clients’ lows are my lows. I can mention a few. In 2009, we began a portfolio that I was managing on behalf of Centum. I was given Kshs.2.3 billion ($23 million) and I was told, go invest in the continent. We only had one percent of our portfolio outside of Kenya and I had never invested outside of the country. I remember we went out there, and my first flight was to Nigeria; throughout that flight, I prayed to the end, because I did not know who I was going to meet on the ground. I didn’t have contacts in the ground. When I landed, it is like everything had just fallen into place. To cut the long story short, we had a very successful five year period. I think during that period up from $23 million we made in excess of $60 million. I remember at the height of it, 2014, 63 percent of our portfolio was invested outside Kenya and we were importing 80 percent of our investment income. We literally import GDP into Kenya by investing across the continent. It was also a proof of concept and it’s on the back of that, that Nabo Capital was launched. Because we had really proven that, in Africa, opportunity was real; we had tested it with our own money, and we had brought money back home plus handsome returns. My second high is really the opportunity to start from scratch and this is one of the most unique things about Centum and its culture. Anything is possible, as long as it's legal, of course.



Your limitations are really designed by you and not by the organization. I was given a platform to manage a portfolio and that platform became Nabo Capital. And to see Nabo capital come to life, attract clients from all over the world and make money for them has been an unending high for me. Every day I ask myself, ‘are we really building an institution that will last more than a 100 years?’ We've done a lot of work over the last six years to set up the right foundation, the right culture, to have the right people, to have the right philosophy of investing. It’s been exciting and it’s still getting much better.

Walking in I saw quite a few young people. Do you ever see yourself in them? And if you ever met 20-year version of yourself, what would you tell him? I sat in this same office, probably in this seat when I was recruited 14 years ago. I was a young man, about 28 years old.

from the people that we have right here.

What's next for you, what’s next for Nabo Capital? We’ve spent the last five-six years laying the foundation. The next step for us is scaling up. We are speaking to all kinds of clients out there, sovereign wealth funds, endowments and global pensions. We want to bring them to the continent, to hold their hand when it comes to investing in Africa. The opportunity for us is not just in Kenya; the opportunity is in the entire continent. We see the Nabo name becoming a house hold name across the continent, probably having a few offices around the continent just to make sure our boots are firmly on the ground where the action is really happening. I think my biggest job is setting up Nabo Capital for success for the next 100 years!

Today, my team consists of people that were wearing shorts in lower primary school when I was being recruited into the Centum Group. They are now working for me and it's my opportunity now to create opportunities for them, so that a couple of years from now they’ll be the ones telling this story, but from the other side of the table. I do see a lot of myself in them. They are probably smarter than I was those days. I see a lot of promise in them; they are very sober and they love the challenge. Their opportunity is bigger than it was for me, because now we’re talking about an African opportunity. Our team at this point has much more of a global mindset than we did when we were starting out. I'm very confident that quite a number of the CEOs that will be in this industry over the coming years will come







Who is Joel and what does ABACUS do? Professionally, I’m the founder and CEO of Abacus wealth Management, which is Kenya’s first online brokerage which allows investors locally and in the diaspora to access equities, fixed income, managed funds, savings, pensions etc. We’re currently working on an algorithm driven advisory service. On a more personal level I collect vinyl records, I love to travel, ride motorcycles, camping and semi-professionally sit on the fundraising board of the Alliance High School development fund. Describe the African start-up experience I don’t like to talk about other people’s experience because I haven’t lived them. So, my personal experience has involved the collapse of two banks. In one, Imperial bank, we lost pretty much 75% of the capital that we raised and the other, Chase Bank, held some assets for our investors. This was in a span of 6 months!

Curiosity leads peop

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In the middle of all this, the meltdown happened at Angani, (cloud provider) and we were down for a few hours and we lost a lot of data. Fundraising is also extremely difficult because foreign funds aren’t necessarily coming to Kenya for start-ups. They want something bigger than start-ups.




ple to being

ey are consistently





Also without my beard I basically look 12, and it’s difficult for someone who looks like I do to successfully convince the traditional investor that I know this thing well enough to build a business around it because there’s this element of optics locally. For wealth managers abroad, if you’re managing people’s money then you can’t look rich because it mustn’t look like you’re using people’s money to enrich yourself, but locally you have to look like you’re used to handling money before people trust you with theirs.

wavelengths. And like they say with divorce there were ‘irreconcilable differences’ and I opted to leave. The issue is they couldn’t keep it running without me and a few months after I left it was shut down.

I love people with a good work ethic. I’m a hard worker myself and I constantly push myself as far as I can.

How does one know it’s the right time to start a business I don’t know if there’s a conclusive answer to this. From the discussions I’ve had with people who have businesses, some stumbled onto a problem they were trying to solve, identified a gap and built a business around it. But there’s never a green light that says ‘now!’ and especially if you’re a young person without capital, connections or experience. The bulk of it is just going out there and not giving up! You had a start-up called ‘Pesa Talk’ what service did you offer? Pesa talk was a blog that translated Business news to ‘english’…. laymans. The point of it was to help everyone understand what was going on in the markets. Why was Pesa Talk unsuccessful? I wouldn’t say pesa talk was unsuccessful. Let me put it this way, we were getting about 25 thousand to 50 thousand readers monthly and were about to break even, so we were actually pretty good. Pesa Talk was my first outside funded business and what I understood about what I wanted to do Vs what the VC understood we were up to… were on different


How did this experience affect your perspective of outside funding? One thing I learnt from that experience was to actually understand the partners you’re bringing in. Are your visions aligned in granularity? We also get carried away by the ‘Oh wow, they’re giving me 20 million bob’ and forget to question why. Do they expect to get 40 mill at the end of 6 months? It’s also important to get a partner that understands the environment that you’re in. If someone comes from the US where things move very fast and you’re telling them that it’s taken 6 months for a bank to give you an API connection and it can be difficult for them to grasp that because of how different their experience is from yours. One of my favourite things though is that money changes quite a lot of things as well. When you’re a young business and you’re bootstrapping the business usually has this monthly cycle where everything points towards the end of the month. However when you have funding you’re able to do



strategic things. You can invest and say that this thing can pay off in 6 months and will pay off handsomely; and you’ve got those 6 months because you’ve got the funding. You couldn’t think the same way without the money because in the meantime how will you pay bills? And it also affects the quality of output because it eases the rush.

information on African markets, but over time it has evolved to enabling execution. We used to get a lot of complaints, especially from our users in the diaspora, that they could model very well and they liked the look and feel of the platform but they could execute because it’s been close to impossible to get their broker on the phone.

Money also allows me to focus more on things like company culture and setting things up in a way that allows the people that I work with to thrive. As a CEO I do these 3 things, I have to make sure that there’s money in the bank, I have to find the right people and I have to set the vision. And with the right people a lot of things basically take care of themselves. And with these people you have to create the right environment to thrive.

We listened to the push-back, and it took quite a bit of time to evolve especially given the unique challenges that we faced, losing the bulk of our funding and so on. I had to do consulting work on the side and so on and pay the bills at abacus. As a bootstrap business it’s been fairly difficult but we figured that out.

What do you look for in the team that you work with? Most of all curiosity: Curiosity leads people to being smarter because they are consistently looking for new information. And with a curious team it’s easier to discover new things and experiment. Hard workers: I love people with a good work ethic. I’m a hard worker myself and I constantly push myself as far as I can. I don’t like brilliant assholes: These are super brilliant people but then are very abrasive. If someone is brilliant but abrasive then they make it harder for everyone else to work. It’s a selfish thing. It you’re brilliant but abrasive then you don’t fit the culture and we don’t have room for you at Abacus. What was your vision when you started abacus and how has it evolved? Originally I was building a Bloomberg style platform, essentially focused on giving the best quality of


Are you raising more capital, if so, what do you intend to use the raised funds for? We raised $200,000 in 2015 right before the collapse of imperial. We are about to raise more this year. And we’re going to use it to roll out a couple of our products. At the top of the list is a savings product. We call it a start account and the idea behind it is a place where your savings can enjoy excellent returns. This will be a managed fund. We’re working with fund managers locally to ensure that we drive good returns. We also intend to scale our user base to about 500,000 people split down the middle between local and diaspora users. We’re keen on diaspora users because World Bank research continuously singles out Kenyan diaspora as one of the communities that is interested in investing. They sums that are sent home from the Kenyan diaspora are also quite substantial. What’s your relationship like with the Capital Markets Authority? We have a cordial relationship with the CMA. We provide a lot of software solutions to help companies with CMA licensing. When presenting their mobile apps to the



CMA we are present to answer any questions they might have and ensure that they meet the requirements. I’ve spoken at quite a few of their events. I’m consulting with the CMA regulatory sandbox. How has running abacus changed you? It’s made me significantly more patient than I could have previously imagine being. Navigating the collapse of 2 banks gave me an incredible tolerance for things not going my way. It’s practically almost made me lose my sanity. I’ve taken quite a big hit on mental health and right now I’m advocating for people to get checked. As an entrepreneur you might keep thinking, ‘I’m just tired let me take an energy drink’ but you might be burnt out or depressed.


How’d you navigate the mental health issues? One thing I’ve learnt is when running a business have a very strong support system. My mother and my wife tend to be very good at ensuring that I’m consistently grateful for everything that I’ve done. And that gratitude is a very powerful enabler for keeping me going. I have had to seek professional help. After the banks collapsed, I thought that my business was dead and I fired my entire team, but they refused to leave. They said that they’d keep working and we’ll figure out where the money would come from. Carrying that weight makes it difficult to rest because you’re always trying to solve the next problem. It’s difficult to schedule rest into your daily and weekly cycle. I’ve learnt that there’s a sense of

urgency that we all operate with and that doesn’t go away but it can be detrimental to you because you’ll often mistake activity for progress. It’s important to take the time to properly do something especially at the beginning. Why do local start-ups fail? There’s several reasons. The first of which is often inexperience. A lot of people have never been in business before and don’t know what it means to be in business. That inexperience coupled with a lack of financing are major contributing factors. What would you tell Joel from 2008? Be patient! I made my first million before I turned 21. And lost it all together with a lot more people’s money. And between then and when I started Abacus I was always swinging for



the fences. I wanted to start a business that would make me a millionaire in 6 months. And if I didn’t see any potential in 3 months I’d do something else. I did that for a few years whereas if I stuck with one thing I would have probably been a millionaire a lot faster.

The highest point is every day. The fact that we’re still here. The fact that the team refused to leave when things were toughest. The closing of the first software licensing deal. The arrival or a new board chair. Things are looking up. ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊

What’s been your toughest challenge and highest points so far? The toughest challenge an entrepreneur faces is themselves. The self-doubt, the lack of sleep, the emotional roller coaster that shifts between emotional extremes within very short periods of time. It’s tough to deal with this but if you can deal with yourself then you can face anything.








Lending Could mobile lending lead to a debt crisis in Kenya, the same way that credit cards did in the US?


his is Wambui (*not her real name).

She’s a single parent who is also holding down a career in the media industry. Someone in her position is constantly awash with wave after wave of unexpected responsibility. Everything from sudden urgent home repairs, to short notice school trips, pop every now and then. In order to cover these costs Wambui took her first small loan from a mobile lender in 2014. Her first sum was about Ksh. 5,000 “I have never been late for a payment,” she started, “I know that I have a good credit score because my limit keeps going higher and higher.” Mobile lenders can provide a sense of dignity where an individual avoids asking for small loans from friends and family who can quickly grow weary of these requests. But people borrow for different reasons, “There’s no one reason why I keep going back to mobile lenders. It changes from time to time. Sometimes its emergencies…




Sometimes its frivolous spending.” Said Wambui. Situations like these are slippery slopes; where a relatively small first step leads to a chain of related events culminating in some significant (usually negative) effect. The incremental nature of the borrowing limit coupled with the level of ease and convenience of borrowing makes this a sort of trap where the fish hooks itself to the bait. Before the party knows what’s going on, they are trapped in a debt cycle where they use their salary to repay loans and end up having to live off of the loans. An ironic situation but one that is highly prevalent in Kenya. “It’s not like I’m not earning a decent living. But as the saying goes, more money more problems; There’s always an extra expense!


Trying to kick this habit of borrowing cash is difficult. It has always has way of being postponed to the subsequent month and when I finally manage to make some progress and become debt free, something comes up and I have to borrow again.” Wambui explained. This debt cycle is lethal to savings accounts and Wambui thinks so as well, “It’s difficult maintaining a savings account. It keeps getting drained. This service is alarmingly convenient and you rationalise it saying how ‘I’ve always been able to pay it back’ or ‘it’s a small sum’, but

the truth is it can be quite difficult to kick the habit leave alone save.” Wambui is the tip of the enormous iceberg representing Kenyan borrowers. A recent report from research firm Financial Sector Deepening (FSD) indicates that 29 per cent of mobile phone owners



"...the truth is it can be quite difficult to kick the habit leave alone save."

in Kenya have borrowed from M-Shwari and there are 49 loan apps in the country. According to the report, digital credit in Kenya and Tanzania has experienced explosive growth.

Interest Rates

Digital lenders identify as tech companies rather than banks and because of that they are not bound by the same laws that banks do. The government capped interest rates at around the 13


to 14 per cent mark for banks but digital lenders aren’t necessarily included in this clause. Digital lenders offer short term loans with repayment periods ranging from a few days to a usual maximum of a month and target individuals who can’t access loans from mainstream banks. These individuals are less likely to have a steady job or consistent returns in their business and thus stand a higher chance of defaulting on loans or if there is an income, they lack a surplus income that can use to pay back the loan in good time. Some argue that these lenders are igniting defaults since they are actively lending to the riskiest individuals. In the survey by the FSD, these high risk borrowers are less likely to



understand costs or fees associated with loans, and this is because of lack of a lack of transparency. Digital lenders are charging borrowers annualised interest rates of between 18% and 200%; this puts people who delay payments or default in a difficult position. Despite this the low barrier of entry and convenient cash prove to be valid motivators. Other countries have taken steps to prevent this exploitation from happening; for example in China the government has banned micro-lenders from misleading consumers to over-borrow and in 2018 they stopped micro-lenders from loaning people with no income.

In the U.S and Europe

Convenient loans and eased spending are two ingredients in the recipe for disaster. Case in point the US credit card crisis. According to Fortune magazine, Americans are using their credit cards more than ever, resulting in record levels of debt—and raising concerns about potential economic problems in the future. The Federal Reserve says revolving credit in November (which largely consists of credit card debt) hit $1.023 trillion, an $11.2 billion increase. That’s slightly higher than the previous record set in April 2008, right before the housing and credit bubbles burst. Americans aren’t getting any better at paying off those bills, either. Credit card delinquencies in the past year have jumped from 7% to 7.5%. That’s notably lower than the 15% rate hit before the financial crisis, but could be an early warning sign, say credit strategists.

According to the Guardian, in the UK around 2007, unsecured consumer debt – mainly on credit cards, store cards, loans and overdrafts – peaked at 45% of household income. In the years immediately following the financial crash, households were more inclined to kick their credit habit. Saving increased and borrowing declined, as the level of unsecured debt fell to 35% of income by 2012. But since 2012 households have increasingly failed to clear their credit and store card bills at the end of the month. High interest rates on those cards had sent their debts rocketing and the OBR now predicts unsecured household debt will reach 47% of income by 2021. In a story by Kenyan Wall Street, In Kenya 47 per cent of digital borrowers repaid their loans late compared to 56 per cent in Tanzania while twelve per cent of borrowers defaulted on their loans in Kenya compared to 31 per cent in Tanzania. 20 per cent digital borrowers in Kenya cut down on their food purchases in order to repay loans while 16 per cent borrow money to repay loans. In addition, six per cent skipped paying school fees to repay loans while five per cent and four per cent sold assets and forwent medical treatment respectively to repay loans. It’s difficult to compete with the convenience of mobile and digital lenders, however it’s an alarming case to watch people fore-go medical treatment and start to sell devices in order to get out of debt.





How to get out of debt:

For the individuals out there intent on getting out of debt faster but don’t know where to start here are a few pointers: • Pay more than the minimum payment: Whenever possible pay more than the minimum required payment. This is an incredible way to save on interest and speed up the payment process. To play it safe though, make sure that the loan doesn’t charge pre-payment penalties. • Create and live with a bare bones budget: A Bare bones budget is obviously something that is going to be uncomfortable and you should know that going in. Cut all the non-essential spending. This means there will be a temporary lifestyle change but know the quicker you can pay off the debt, the quicker you can go back to what you’re accustomed to. However it’s advised that you should note what habits got you into Debt to start with, and avoid those habits as you move from the bare bones budget back to a more ‘normal’ one.

money toward your debts until they’re demolished — and you’re finally debt-free. • Pick-up a side hustle/ part time job: Extra income is definitely welcome when you’re trying to pay off debt. Luckily we live in the gig economy where supplementing income is easier than previous times. This mean services like Uber can be a good choice. It’s important to priorities all extra income from the part time job or side-hustle to go towards debt payment. • Sell what you don’t need: You could hide under the ‘minimalist’ tag and get rid of everything that isn’t absolutely essential. This is an excellent way to get some quick cash. • Focus unexpected income on debt repayment: Every now and then we come into unexpected income. It could be anything from a bonus at work to an inheritance. When this happens priorities debt repayment and clear a big chunk of your debt.

• Use the Debt-snowball method: As a first step, you’ll want to list all of the debts you owe from smallest to largest. Throw all of your excess funds at the smallest balance, while making the minimum payments on all your larger loans. Once the smallest balance is paid off, start putting that extra money toward the next smallest debt until you pay that one off, and so on. Over time, your small balances should disappear one by one, freeing up more money to throw at your larger debts and loans. This “snowball effect” allows you to pay down smaller balances first — logging a few “wins” for the psychological effect — while letting you save the largest loans for last. Ultimately, the goal is snowballing all of your extra




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Profile for WhiteCollar Magazine

White Collar Magazine April 2019: The Investment Issue  

On this issue, we discuss the possible implications that mobile lending cause. We also look at the fin-tech experience in Africa through the...

White Collar Magazine April 2019: The Investment Issue  

On this issue, we discuss the possible implications that mobile lending cause. We also look at the fin-tech experience in Africa through the...