Mwalimu Sacco eyes 75pc stake in Merali’s bank

Equatorial Commercial Bank. Mwalimu Sacco will buy an additional 24 per cent stake in the bank. PHOTO | FILE
Equatorial Commercial Bank. Mwalimu Sacco will buy an additional 24 per cent stake in the bank. PHOTO | FILE 

Mwalimu Sacco is eyeing an additional 24 per cent shareholding in Equatorial Commercial Bank (ECB) with plans to offload some of the controlling stake to members.

The additional shares will push Mwalimu interest in the bank to 75 per cent following the recent acquisition of a 51 per cent shareholding that saw the vendor beat the capital gains tax (CGT) effective date.

“We have a deferred share purchase agreement that entitles us to 24 per cent acquisition in the second half of this year,” Mwalimu Sacco CEO Robert Shibutse told the Business Daily.

The sacco paid Sh1.6 billion for the 51 per cent stake, Sh600 million of it for capital injection.

Mwalimu intends to sell 40 per cent of Mwalimu National Holdings, the vehicle used to invest in ECB, to members.


The transaction gives the sacco ownership in Equatorial Insurance Brokerage and an indirect interest in Fidelity Shield Insurance, having acquired the stake in Equatorial’s holding company.

Equatorial Holdings own 24 per cent of Fidelity Shield Insurance.

Naushad Merali, the majority owner of Equatorial, and others escaped paying CGT with the transaction said to have received approvals from Central Bank, competition authority and Sacco Societies Regulatory Authority (Sasra) by end of last year.

“Capital gains tax will not apply given that all approvals came in by December 31,” said Mr Shibutse.

Mr Merali has a deadline to reduce his shareholding in the bank to below 25 per cent in line with Central Bank regulations by the end of this year. A former chief executive at the bank had previously told the courts that Mr Merali owned 85 per cent of the bank.

Following the transaction, Mwalimu has three seats in the board and the same number in the insurance brokerage.

Mr Shibutse defended the transaction that raised a storm in the sector, arguing it gives the sacco opportunity to diversify and access new product lines.

“A lot of business that we are now giving to banks, where we have no shareholding, can now be moved to Equatorial,” said Mr Shibutse. He noted school principals, majority of who are members, are not allowed to hold school accounts with the sacco.

Co-operative Alliance of Kenya (CAK) had written to the Ministry of Industrialisation and Enterprise Development seeking to halt the deal.

Some of the issues raised by the alliance include the poor financial performance of ECB and the sale of the bank’s headquarters late last year. ECB profit after tax in the nine months to September fell by more than half to Sh49 million from Sh100.9 million last year.

Mr Shibutse argues the performance was due to low-capital levels, now to be corrected via cash injection. He also noted forming a new bank would have cost much more and taken longer to break even.

United Bank of Africa is the only bank that has recently entered the market on a new licence. Mwalimu Sacco said ECB was regulated by Central Bank of Kenya and therefore not in a position to hive off assets registered under the agreement.