Elsewhere in this edition
we carry the story of a group of Basotho planning to start their own commercial
bank.
They say the financial institution will start
operating early next year if all goes according to plan. We applaud their ambition and admire their
courage. Lesotho certainly needs more financial institutions
that give customers more choice and help develop the country. Competition is good for both business and customers.
Yet we must hasten to warn the group that they are
venturing into a highly technical and capital intensive sector.
Ambition alone will not make their venture
successful. The group says it will keep its service charges just
below those of Standard Lesotho Bank, Nedbank and FNB. That is good but they must realise that lower prices
alone will not be enough to lure customers from established banks. While it is true that customers are frustrated with
the exorbitant bank charges, it is a price many people would rather pay for
keeping their money safe.
If the new bank competes on pricing alone it will be
no match for the three established banks. Service charges are something that Standard Lesotho
Bank, Nedbank and FNB can simply reduce in order to strangle the new entrant. They have the financial muscle to slash their
service charges so as to undercut the new bank. They can also bank on the experience of operating in
markets that are more competitive than Lesotho. In any case, banking is not about service fees
alone.
People want to be assured that they are not dealing
with a financial institution that will sink with their deposits tomorrow.
They want a bank they can trust.
And therein lies the biggest challenge the new
project will face, if it eventually opens its doors. Basotho have previously been left high and dry by
locally owned financial institutions. The collapse of the Lesotho Bank and the Agric Bank
is still fresh in their memories. They are yet to recover from the ruinous effect of
MKM, a company that took deposits like a bank and investments like an insurance
firm. MKM was a Ponzi scheme but to many Basotho it was
just another locally owned financial institution offering good returns on
investment.
If the collapse of Agric Bank and Lesotho Bank
dented the market’s confidence in locally owned financial institutions, then
the demise of MKM killed it. This is the perception that the new bank will have
to deal with when it starts operating.
The group says it is sure that Basotho will support
the bank because it is locally owned and they like “something of their own”. That is true, but only to point. Basotho won’t accept shoddy services simply
because the provider is one of their own.
They might be proud of locally owned businesses but
they still want excellent services. They will not support the bank simply because it is
locally owned. They will not put their money in a bank just because
it is locally owned. The group will therefore have to find other selling
points apart from lower charges and national pride. To compete effectively, the new bank must not limit
its shareholding to locals. A foreign investor with a substantial cheque will do
the project a lot of good when the real battle with the big banks starts.
Little David defeated Goliath, the giant, with a
sling but we doubt he would have been victorious if he was fighting three men
of Goliath’s size and power. The new bank
will walk into a sector dominated by three Goliaths. To win it will
need more than zeal, self-belief, lower prices and national pride.
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