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Banking in Developing Markets

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By Hetul Chandaria, Executive Director, Guardian Bank Limited

Dr. M.M. Chandaria and his late son, Dinesh Maganlal Chandaria, opened the doors of their finance company to the public in Kenya in January 1992. Challenges in accessing finance and even opening a simple bank account experienced by the astute entrepreneur when he ventured into business impelled Dr. M.M Chandaria to take on the challenge and follow his dream by converting the finance company into a full-fledged commercial bank.

This dream was achieved when his business empire was established, as he believed that people deserved a better banking experience.

Mr. Hetul Chandaria, Executive Director, Guardian Bank Limited

Twenty-three years down the line, I am seated in the same position that he held, trying to better the banking experience of each and every one of our clients. Although banking has come a long way, there are still significant challenges that banks face in developing markets. Using my experience with Guardian Bank, I share how a bank can weather the storms of the industry and achieve success amidst various challenges, while delivering the best customer-service experience to its clients in an accountable and responsible manner.

The strategic policy adopted by Guardian Bank revolves around three pillars: good governance—with strong adherence to know-your-customer (KYC) and anti-money-laundering/countering-financing-of-terrorism (AML/CFT) policies; personalized, efficient services delivered by a loyal and dedicated workforce; and integration of practices that support sustainable development.

Good governance is not just a survival tool but also the key to sustainable success for any company with a social commitment. Despite several market shocks over the years that have seen many institutions collapse, Kenya still has one of the most dynamic and vibrant banking sectors on the continent. The most resilient lenders have weathered these storms by maintaining high moral, financial and legal integrity in management. The stable financiers in Kenya have continued to grow and consistently post good results, even in years when the industry and economy at large were struggling from unforeseen shocks.

Board of Directors – Guardian Bank Limited


Knowing your customer is critical to the banking industry, and we pride ourselves in knowing each and every customer personally. We have a robust system of vetting potential clients before on-boarding them. Having a loyal and dedicated workforce over the years has created that resilient staff on which a company’s success depends. They are able to ensure personalized customer service, seamless client experience and transactions that are of good intention. To us, a client is not just a number but an individual who has aspirations and dreams of which we as a bank endeavor to financially empower to achievement.

Besides conducting business in an ethical manner, we go the extra mile to care about the society in which we operate by implementing policies that consider both the community and the environment around us.

Dr. M.M Chandaria and family at one of the Bank’s tree planting activities

Taking care of the environment and community has always been a fundamental principle that our founders, Dr. M. M. Chandaria and Dinesh Maganlal Chandaria, valued and is prevalent in all of our sister firms, which form the Dinesh Maganlal Chandaria (DMC) Group of Companies—engaged in paper manufacturing, petroleum, banking and real estate.

Organizations today have to take into account their social, economic and environmental impacts and consider human rights to foster sustainable development, as they play a key role in the betterment of society.

The future of banking will be a revolution of the past. The scope and speed of evolution in regulation, customer expectation and technology—coupled with the emergence of new competitors—will change banking as we know it, providing both opportunities and challenges for financial institutions.

Developing markets have a way of compelling banks to be more innovative in how they conduct their business.As the banking ecosystem expands beyond traditional banking services, new products will be developed; however, some of the major challenges in our market are visible in matters related to correspondent banking, technology and regulation, all of which can be overcome by implementing strong corporate governance in every aspect of business operations.

International banking relationships

According to Accuity—the global financial-crime compliance, payments and know-your-customer (KYC) solutions provider—between 2009 and 2018, correspondent-banking relationships decreased globally by 25 percent. Following the global financial crisis of 2008, regulators imposed requirements for greater transparency, established higher liquidity thresholds for banks as well as stepped up enforcement actions on institutions that violated anti-money laundering (AML) regulations.

Banks have faced challenges finding or retaining global correspondent banks, as de-risking by international banks in Europe and the United States has hit developing-market regions. International banks have terminated correspondent-banking relationships where they have felt the threat of doing business in the high-risk geographic area outweighed the value of their services to clients.

With AML penalties clocking as high as US$26 billion over the past 10 years, conducting correspondent banking in high-risk geographical areas has become impractical. Lack or loss of such services has increased international transaction costs while decreasing transaction efficiency for local banks, which have to use more than one intermediary to settle transactions.

Complying with the high standards of AML/CFT regulation through the acquisition of advanced automated systems that use artificial intelligence to enhance the security of banking systems promotes trust with both correspondent institutions and customers. Strong KYC policies coupled with seamless on-boarding processes for clients help an institution rise above these challenges, lead to cost reductions in the long-run and promote potential business growth.

Technological innovation

Technological innovation has been fuelling development in our markets, and new technologies are transforming banking as we know it. Bank operations are being recast through digitalization. Revenue growth has become more challenging with the strategy of cutting costs having run its course. Banks and other financial institutions are playing catch up from a technology perspective at a time when consumer expectations are increasing exponentially. Failing to respond could lead to the demise of less agile organizations.

The industry now has new competition in the form of telecommunication companies that are providing financial services to the general public. In the case of Kenya, telecommunication company Safaricom developed a money-transfer system and mobile wallet called M-Pesa, which has eaten into the banking industry’s market share while also revolutionizing the customer experience. Long gone are the days of queuing in banking halls to transact. Banks can overcome this only by adopting the latest technologies and giving their clients mobile apps that are efficient and reliable and linked to their bank accounts. Such services are expected to give customers better experiences, moving customers to easier and more convenient ways of banking—away from the traditional banking halls. To quote Bill Gates: “Banking is necessary; banks are not.”

While innovation and new technologies disrupt the market, they also open multiple opportunities for financial-service providers to reinvent themselves and thrive.Continuous upgrading of systems to stay relevant and provide better service and experience to both customers and employees is important, as is integrating with other financial-service providers to increase the range of products available for clients. From mobile applications to internet banking, a bank can only look forward towards going branchless and paperless. An institution can create its own niche by striking a balance between digital engagement and physical or personal engagement with its customers to give them the best of both worlds.


Regulation is part and parcel of today’s economies. Similar to developed markets, central banks in developing markets formulate monetary policies to promote financial stability and safeguard markets against shocks. Respective governments also implement fiscal policies in an effort to bolster local economies. Whereas stricter regulation and supervision increase the industry’s stability, there are other dimensions of regulation and supervision that affect banks, depending on their policies and structures.

Some policies implemented in good faith to spur economic growth are sometimes detrimental to the growth of the economy. In Kenya, banking services were significantly affected when interest rates were capped and deposit rates floored in 2016, following the signing into law of the Banking Amendment Bill 2015.

As our strategy to be competitive in the market has always been to offer rates affordable to all, the interest-rate cap had no significant impact on the bank. Rather than waiting for the regulator to implement policies that would safeguard the client and market as a whole, an institution should be disciplined in its practices, which comes back to following sustainable-development practices.

On the other hand, adhering to regulatory requirements, more particularly liquidity and capital adequacy, is crucial for medium-sized banks. The importance of liquidity management and maintaining adequate capital cannot be overstated since the size of the bank exposes it to higher liquidity risk compared to the bigger players in the market. In a market like ours, it is prudent to hold a good amount of capital reserves to help cushion the bank from unforeseen shocks.

To conclude, change is the only constant, and change in the banking industries of developing markets is imminent and necessary for the growth of the whole economy. Despite the challenges, banks will continue to expand to include the unbanked population. With such progress, the banks of developing countries may take the leap to develop ideas and technologies to overcome the challenges they face, and this could revolutionize banking worldwide.


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