Featured case: African Bank Investment Ltd (ABIL):
A South African Corporate Governance Failure

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The case

Who – the protagonist

Ian Matthews, Head of Equities at BG Wealth.

What?

The case focuses on the collapse of one of South Africa’s unsecured lenders, African Bank. Unsecured lending, a practice where funds are loaned without the backing of an asset or any other form of security, started off in Bangladesh in the 80s as a way for governments and NGOs to provide the rural poor with loans.

By the 90s in the African continent, it had become more commercialised as commercial banks started to enter the unsecured lending market. In South Africa, African Bank became, in the second decade of the 21th century, one of the most successful actors within the unsecured lending market, attracting many professional investors to bet on their strategy and buying their stocks.

The case is told through the story of BG Wealth (a fictional investor based in South Africa), who were at the time of African Bank’s collapse one of the largest shareholders.

Why?

Impressed by Leon Kirkinis’, African Bank Investment Ltd (ABIL) CEO, passion for unsecured lending, and spotting an opportunity to take advantage of a disappointing trading period, Matthews was very keen for his firm to invest, which they eventually did.

Disaster struck, however, when Kirkinis resigned and ABIL needed to raise at least R8.5 billion in additional capital. With BG Wealth owning 12.87% of ABIL’s shares – their clients stood to lose a lot of money.

When?

On a long weekend away mountain biking, Matthews received the dreaded call about ABIL’s demise from his CEO Deryck Medley on 6 August 2014.

Cape TownWhere?

BG Wealth are based in the South African coastal city of Cape Town.

Key quote

“Unsecured loans enable countless ordinary South Africans to build their homes, educate their children, and provide for themselves.” – Leon Kirkinis, ABIL CEO.

What next?

BG Wealth had a big decision to make in regard to ABIL.

Should BG Wealth hold or sell the stocks?

What did they miss? What should have been picked up earlier? What do they do now?

 
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African Bank Investment Ltd (ABIL): A South African Corporate Governance Failure
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Teaching note

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The authors
author

Stephanie Giamporcaro and Matthew Marrian

Inspiring students

Stephanie said: “We believe this case is a very good example to follow for students who are willing to embark on the project of writing an excellent case study.

“In terms of preparation, the three important aspects were: firstly, to build a full knowledge about the ABIL story through secondary data. The second aspect was to know the angle that was the most important for us in order to tell the story. We wanted to tell the story from the point of view of investors who had invested in ABIL, who were not able to see the corporate governance and social red flags. Thirdly, in order to be able to understand this point of view, interviews were conducted with a wide range of asset management professionals, who helped us to tell the most authentic and realistic story possible.”

Matthew added: “It is also very important to pick a topic that you’re very interested in, as this will make the research process much easier.

“As always, the challenge with case studies is to build a narrative that enables a short and simple format to deliver the key elements of the story you want to tell, and the learning objectives you want to teach.”

Overcoming challenges

overcoming challenges

Stephanie continued: “The interesting thing here with the ABIL case and other cases that are part of the GSB collection, such as the Lonmin case or the First Tech case, is that we had the ambition to provide a degree of complexity that would help students to build proper critical insights. All these cases show different responsible investment dilemmas that can be faced by professional investors, when they analyse companies’ financial valuations.

“The actual challenge with writing the ABIL case was to be able to inject the necessary amount of complexity, by depicting accurately the role of multiple stakeholders without compromising on the case’s clarity and conciseness.”

Matthew commented: “The biggest challenge is to write a concise yet complex case that has just the right amount of information in it to allow the students to be able to know where to ask further questions.

“I think I rewrote this case about 10 times. The reason for this is the planning of a story for a case study is a skill, and takes time to master.”

Relevant over timerelevant overtime

Stephanie explained: “What is challenging when writing a good case study is to actually make sense of all this secondary information, such as online coverage, and turning down the noise to target what is essential and completely core to the story you want to tell and teach.

“My goal is that even in 10 years, when the hype around the story in the media has faded, is that the case remains relevant and universal. My experience is that interviewing people who have been close witnesses to the story can really help to design a compelling case study.”

investment in casesInvesting in cases

Stephanie concluded: “I enjoy teaching all the cases I have supervised about responsible investment dilemmas, and African Bank is one of my favourite because of its complex social aspect.

“We started to write these cases at the GSB because there were very few teaching cases available on corporate governance failure in South Africa, and even less on the specific question of responsible investment in Africa and elsewhere.

“What I enjoy particularly about teaching a case, like African Bank, is to open students’ minds to the importance of factoring in social, environmental and corporate governance dimensions when you are working in the investment industry.

“In addition, African Bank presents a great opportunity to introduce students with no finance and investment background to the world of financial markets in an innovative, lively and critical fashion.”

About the authors

Associate Professor Stephanie Giamporcaro is affiliated to the University of Cape Town Graduate School of Business and the University of Nottingham Business School.
e stephanie.giamporcaro@gsb.uct.ac.za

Matthew Marrian works in the financial services industry at an Investment Advisory business, and is Head of Client Service.
matthew@fundhouse.co.za

 

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