Wadaag Bank: A Replica of Kenya’s Equity Bank

By. Bashir Hagi Ali

1. EQUITY BANK, Kenya:

First, let’s take a closer look at Equity Bank in Kenya. Historically, Equity Bank in Kenya started in 1984 as Equity Building Society (EBS), focused on mortgage financing for low-income customers.

It was technically insolvent in 1993 but subsequently shifted its model toward microfinance and broader retail banking, which led to growth. It became a full commercial bank in 2004.

The bank is a subsidiary of Equity Group Holdings Plc, which is a financial services holding company. Equity Group’s operations are multi-country in East and Central Africa: Kenya, Uganda, Rwanda, Tanzania, South Sudan, Democratic Republic of Congo, plus a representative office in Ethiopia. Equity Group is publicly listed in Nairobi Securities Exchange (NSE) which is regulated by the Capital Markets Authority (CMA) of Kenya. ​The CMA is an independent public agency established by an “Act of Parliament” with the primary responsibility of supervising, licensing, and monitoring the activities of market intermediaries, including the Stock Exchange.

The Capital Markets Authority (CMA) of Kenya regulates the Nairobi Securities Exchange (NSE) through a comprehensive legal and regulatory framework designed to ensure an orderly, fair, and efficient market. Here’s a breakdown of how the CMA carries out its regulatory functions:

▪︎ Licensing and Supervision;

▪︎ Creating and Enforcing Regulations – The CMA develops and enforces a wide range of regulations and guidelines under the Capital Markets Act. These regulations cover various aspects of the market, including Public Offers (IPOs), Listing, Disclosure, Market Conduct and Corporate Governance;

▪︎ Investor Protection – a key mandate of the CMA is to protect investors. This is done through Promoting Public Awareness (the CMA conducts investor education to help the public understand the risks and opportunities of investing in the capital markets), ​Handling Complaints (the CMA provides a formal complaints procedure for investors who have issues with market intermediaries), and ​Investor Compensation (the CMA manages the Investor Compensation Fund, which provides a level of protection to investors in the event of a licensed firm’s failure);

▪︎ Enforcement – the CMA has the power to take enforcement action against individuals and entities that violate its regulations. This includes imposing fines, revoking licenses, and pursuing legal action.

​In essence, the CMA acts as the market’s watchdog in Kenya, ensuring that the NSE (Nairobi Stock Exchange) operates with integrity and that the interests of investors are protected. Its regulatory framework is designed to promote a fair, transparent, and secure environment for all participants.

Furthermore, equity bank is licensed under Kenya’s laws: Companies Act and Banking/Financial services regulatory regime. It is regulated by the Central Bank of Kenya (CBK).

Here’s how Equity Bank operates in practice:

Mission & Philosophy – the bank’s vision is to champion socio-economic prosperity of people of Africa. Key values include inclusion, convenience, flexibility, focusing on underserved populations.

Products & Services – the bank offers wide range of services: retail banking (savings, current accounts), loans (personal, business, MSME, mortgages), microfinance, investment services, insurance, foreign exchange, etc. Digital banking such as mobile app, online banking, and agent networks are also offered by the bank. Equity has invested heavily in digital channels. A large share of transactions are now digital.

Revenue Model – Earnings come from interest margin (loans vs what they pay for deposits & capital), plus non-interest income (fees, commissions, transaction charges).

Innovation & Social Impact – they have a separate foundation (Equity Group Foundation) to drive social programs: financial literacy, health, education, entrepreneurship etc. Also have product campaigns aimed at inclusion: services for low income, rural, women entrepreneurs etc.

Strengths & Challenges:

▪︎ Strengths – Deep reach/inclusion (bringing financial services to previously under-served populations.)

▪︎ Diversified presence regionally, so not wholly dependent on Kenya.

▪︎ Strong brand, strong digital infrastructure & innovation.

▪︎ Product diversity.

Challenges:

▪︎ Managing non-performing loans (credit risk);

▪︎ Fraud and operational risk as digital and agent networks expand;

▪︎ Keeping costs under control while maintaining large physical & agent networks;

▪︎ Regulatory challenges, e.g. adapting to stricter banking, fintech, tech risk guidelines;

Equity Bank (then Equity Building Society – EBS) became technically insolvent in 1993 because of a combination of structural weaknesses and an unsustainable business model at the time:

▪︎ Narrow Focus on Mortgage Financing:

In its early years (1984–early 1990s), EBS mainly provided long-term mortgage loans to low-income earners. But these customers had irregular or small incomes, and many could not meet repayment schedules. This led to high default rates and mounting non-performing loans (NPLs);

▪︎ Mismatch Between Deposits and Loans:

The society (EBS) relied on short-term deposits from members but issued long-term loans (mortgages). This created a liquidity mismatch—when depositors wanted their money back, EBS couldn’t easily recover it from borrowers tied up in long-term mortgages;

▪︎ Weak Governance & Systems:

At that time, EBS lacked robust corporate governance, risk management, and modern banking systems. Fraud, inefficiency, and poor financial controls worsened losses;

▪︎ Macroeconomic Conditions:

Early 1990s Kenya was facing economic turbulence: inflation, high interest rates, currency depreciation, and political uncertainty. Low-income clients (EBS’s main target group) were hit hardest, reducing their repayment ability;

▪︎ Capital Erosion:

Continuous loan defaults and operating inefficiencies meant the society was not generating enough income. Losses eroded capital reserves, so by 1993 it was technically insolvent—its liabilities exceeded its assets;

Instead of closing it down, the leadership (notably Dr. James Mwangi, who joined in 1993 as Finance Director) restructured the model. He shifted from just mortgages to microfinance-style retail banking. He Introduced savings products for small savers. He focused on financial inclusion. Later on, he digitized operations and expanded regionally. That transformation is what turned Equity bank from an insolvent building society into East Africa’s largest bank by customer base.

Did Equity Bank rely on equity capital from owners? Yes — but not in the typical “rich investors” sense. In the early 1990s, when it was still Equity Building Society (EBS), the institution was technically insolvent and could not raise big capital from conventional investors. Instead, it mobilized small contributions (equity capital) from its members/customers.

Each member who opened an account or joined the society was effectively a shareholder — a kind of mutual ownership model. This allowed it to rebuild capital from the grassroots up, using community savings as equity rather than depending only on external wealthy shareholders.

So the name “Equity” really emphasized fairness, ownership, and capital that is shared broadly (‘Wadaag’ in Somali).

How did the community and society become owners of the bank? This is where Equity’s model became revolutionary:

a) Mutual Society Origins:

As a building society, members were also shareholders. Depositors were given shares that gave them voting rights in governance. This was very different from conventional banks, which are usually owned by a few rich investors;

b) Democratization of Ownership:

As it transformed in the 1990s, Equity bank encouraged customers (farmers, small traders, teachers, civil servants) to buy small shares. By doing so, thousands of ordinary Kenyans became part-owners;

c) Employee Stock Ownership:

Equity bank introduced Employee Share Ownership Plans (ESOPs) to give staff real stakes. This aligned employees’ incentives with the bank’s success;

d) Public Listing:

In 2006, Equity bank converted from a mutual-style building society into a fully listed company on the Nairobi Securities Exchange (NSE). At that point, community members, small savers, and customers could buy shares directly in the bank, making it one of the most widely held institutions in East Africa;

e) Institutional Anchors:

To safeguard inclusivity, development investors (like Arise BV, partly backed by Norfund, FMO, Rabobank) later bought stakes — but the philosophy of community ownership and “bank for the people” remained central.

Why was this important?

▪︎ It gave legitimacy and trust: ordinary Kenyans felt “this is our bank”;

▪︎ It created resilience: instead of relying on a few investors who might pull out, Equity had a massive base of loyal shareholders and depositors;

▪︎ It fit the inclusion mission: the very people who were historically excluded from banking were not only customers but also owners.

In short, Equity Bank did rely on equity capital — but unlike conventional and elite-owned banks, it tapped into the community’s small savings and shareholding, gradually converting them into a broad ownership base. That’s how society itself became part-owner of the institution.

Timeline of Equity Bank Ownership Evolution:

◇ 1984 – Founding (Equity Building Society):

• Registered as a building society, mainly for mortgage lending to low-income earners;

• Ownership: Mutual model → depositors and members were also shareholders;

• Each member’s savings contributed to the “equity” capital base;

• Philosophy: fairness + community ownership (hence the name Equity);

◇ 1980s – Early 1990s: Struggles:

• Focused narrowly on mortgages for poor rural households;

• High default rates + liquidity mismatch → by 1993, technically insolvent;

• Ownership at this point: still member-based, but capital was eroded.

◇ 1993 – Turnaround Begins:

• Dr. James Mwangi joins as Finance Director;

• Strategy: Shift from just mortgages to microfinance + retail banking; Mobilize savings from ordinary people (teachers, farmers, traders).; and Rebuild trust by making customers also owners;

◇ Mid-1990s – Early 2000s: Community Ownership Deepens:

• Customers encouraged to buy small shares in the society;

• Thousands of ordinary Kenyans became shareholders;

• Introduced Employee Share Ownership Plans (ESOPs) to align staff with the bank’s mission.

◇ 2004 – Conversion to Commercial Bank:

• Equity Building Society officially becomes Equity Bank Kenya Ltd, a licensed commercial bank under the Central Bank of Kenya (CBK);

• Ownership: still heavily community-driven, with small shareholders and employees as co-owners;

◇ 2006 – Public Listing:

• Equity Bank lists on the Nairobi Securities Exchange (NSE);

• Shares become available to the public → customers, staff, and communities could directly own part of the bank;

• Becomes one of the most widely held companies in East Africa;

◇ 2010s – Regional Expansion:

• Equity evolves into Equity Group Holdings Plc, a parent company with subsidiaries in Kenya, Uganda, Rwanda, Tanzania, South Sudan, and later the DRC;

• Still emphasizes inclusivity in ownership: customers, employees, and international development investors;

◇ 2015 Onwards – Institutional Shareholders Join:

• Major investors like Arise BV (backed by Norfund, FMO, Rabobank) acquire stakes (~12–13%);

• Helps strengthen capital base for cross-border expansion;

• Ownership balance: Retail investors & customers (community roots); Employees (via ESOP); and Institutional investors (for capital stability);

◇ Today (2025):

• Equity Group Holdings is a publicly listed financial services giant with over 20 million customers;

•Still has one of the widest shareholding bases in Kenya;

• Operates as a hybrid model: rooted in community and employee ownership, supported by developmental institutional investors, and run as a modern listed company;

In summary:

◇ 1984–1993 → mutual/community model (members = owners);

◇ 1993–2004 → grassroots rebuilding, customers & employees become key owners;

◇ 2006 → listing democratizes ownership even more (public shares);

◇ 2010s–present → hybrid of public shareholders, community, employees, and institutional investors.

2. WADAAG BANK, Somaliland:

Now, let’s turn our attention to equity bank’s copycat in Somaliland called “Wadaag Bank”. The Somali word “Wadaag” itself means “Equity.” The bank is established in August, 2025 in Somaliland.

In a recent interview with the CEO of Wadaag Group, the parent company of Wadaag Bank, Mr. Abdirashid Baaxeer by MMTV, said the bank is planning to raise $20M equity capital from the public by issuing 20,000 shares with more than $1,000 per share. He also said that they’re soon planning to establish Wadaag Foundation (just like Equity Foundation). He indirectly hinted the fact that the bank has almost zero assets and so far solely rely on the $20M equity fund soon to be raised from the public.

On top of everything, Somaliland’s financial system lacks essential infrastructure to regulate and supervise one of the most important component of financial system – direct financing or financial markets. There are no acts, laws and bodies for the regulation and supervision of financial market transactions in Somaliland, be it debt or equity market activities. The Stock Market is missing, and there are no financial market authority and acts.

Moreover, so far, it is not clear to the public how Wadaag Bank managed to come up with one of the highest stock valuation in the history of finance, banking, and markets with more than $1,000 per share when it has so far zero performance and track records in revenue, assets, income and overall operations. In addition, there are also many challenges and risks facing the bank in generating revenue and income for it’s shareholders. High competition in banking sector in SL, limited products and services, high inflation, low income, limited financial inclusion, fraud, inefficiency, high default rates, and lack of documentations among others

Wadaag Banks’s ownership and governance structure is similar to that of Equity Bank in Kenya with a little differences. Instead of making the banks’s depositors shareholders, Wadaag Bank started to directly go to public with zero track records and performance, raising $20m by selling 20,000 shares to the public, what a joke and drama!

CONCLUSION & SUGGESTION:

This is clearly a huge systematic risk in our financial system. Therefore, until proper regulations and bodies for financial market activities in SL, such as financial markets authority and financial markets act, are put in place, Somaliland government should immediately halt all activities and transactions related to direct financing activities particularly financial market transactions in Somaliland before it’s too late.

Many thanks for the undivided attention and longanimity to read the long piece. It took me more than 2 hours to put it together, and it took you 15 minutes to read it. You’re welcome!

Bashir Hagi Ali

(BSc, MSc, and MBA in finance and banking)

Hargeisa, Somaliland.