The Capitec Bank Case Study

Table of Contents

1. Introduction .......................................................................................................... 1

2. SWOT Analysis.................................................................................................... 2

3. Opportunities ....................................................................................................... 3

4. Strategic Recommendations to capitec bank leadership ..................................... 4

5. Reference List...................................................................................................... 5
1. INTRODUCTION

This assignment is based on Capitec as a case study that has been prepared for the
Wits Business School. Capitec was born to exploit an opportunity niche as the financial
regulatory system and the banking space transitioned from 1992 with the promulgation
that exempted small loans from interest rate restrictions into a whole new era of access
into cash-loans and term-loans.

The case study looks at the transition that Capitec bank took from its early beginnings
in 2001 as a microlending organization and how it evolved overtime to a bank with
microlending capabilities by 2006. In its early establishment, Capitec was offering
microloans through a sister organization, Fin Aid, and collecting its loan repayments
through Capitec bank. This strategy was however short-lived with management’s
realization that this strategy is better optimized through a merger of both sister
companies into a fit that offers both worlds under one brand identity.

It is with this background that the assignment is to do a SWOT analysis on Capitec

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2. SWOT ANALYSIS

STRENGTHS WEAKNESSES

• Its business model targets low- middle • Even though the percentage margin of
class clients relative to its competitors. profitability maybe high, the absolute
• Relatively low service cost provisions. figures per loan are relatively lower.
• The need for securitization is minimal • Unsecured loans are risky.
resulting in improved accessibility for • The likelihood of default for lower-end
loans by the lower end of the spectrum. client is higher even though the likely
• The risk of default is minimal given the impact maybe minimal.
quantum of the exposure due to the • Has limited product range
nature of short-term loans on offer. • Cannot compete with the 4 major
• Location of its outlets/services banks toe to toe.
Branches are where the lower earning • Limited outlets relative to post bank,
clients work and stay, therefore more which can be regarded as a direct
accessible to its clients. competitor.
• Simplicity, quicker to get a loan • Its cost of doing business relative to
because clients are not strictly Post bank that enjoys government
scrutinized. The requirements are not backing maybe higher.
stringent therefore turnaround • Its clients have a low risk appetite and
time/transaction time shorter. they only take loans for
• Clients’ loyalty is high due to their consumption/household goods.
dependency on Client service • Management of numerous smaller
advisory. People requiring loans from accounts can be tedious.
Capitec do not have business
exposure, they require and rely on
advice from Capitec staff who they
easily identify with. This is because
Capitec’s Client service staff is
recruited from members of the
community/own locality.

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 • Attracts a large number of smaller
accounts /not dependant on smaller
accounts.

OPPORTUNITIES THREATS

• 64% of people still not bankable • The propensity to spend for lower-end
therefore more target market for clients fill the pinch a lot quicker when
Capitec. the economy is nose-down.
• Transaction costs of Capitec relative to • The profitability of the business is
four major banks are on average lower largely hinged on economies of scale.
and processes costs are lower to pay • Increasing level of regulation is eroding
staff because they are not Capitec’s ability to offer micro-loans.
professionals (low wage bill). • The profitability of micro financing is
• They have an opportunity to recruit the being marginalized by increasing
remaining individuals that don’t have regulatory controls on repayment
bank accounts. interest rates.
• They can expand to other jurisdictions • Competition from larger financial
(regional market opportunities). institutions is intensifying as they widen
• They can collaborate with other the breath of their appetite towards the
businesses/retailers in order to expand lower-end market with products such
their cliental. as the Mzansi platform that empower
major banks to compete at micro-
lending level.

3. OPPORTUNITIES

3.1 The transaction cost of Capitec relative to four (4) major banks is not average
cover and processes costs are lower because the bank pays its employees
less due to lack of competency. (low wage bill)

3.2 64% people do not have access to the bank and Capitec has the opportunity
to target the remaining population and offer them unsecured short term loans.
(wider range target market)
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 3.3 Opportunity to collaborate with retailers where they would offer to purchase
goods from retailers on behalf of clients thereby widening its clientele and
market opportunities.

4. STRATEGIC RECOMMENDATIONS TO CAPITEC BANK LEADERSHIP

4.1 Capitec has the capability to operate as a fully fledged bank by increasing
products and services such as vehicle and asset finance, increase number of
ATM’s etc and take more risk. These would enable it to compete with major
banks in all other services while maintining micro-lending as its strength where
the major banks would not be able to compete with it.

4.2 Capitec needs to strengthern its marketing that would enable it to have more
outlets where it has not reached, the stratergy would be to partner with
communications companys such as Vodacom South Africa to allow low income
earners to buy affordable phones and have a “capi-voda” plan with a sim card
that would allow Vodacom to advertise/market its product on behalf of Capitec.

4.3 Additionally, it can maintain microlending as its dominant strength and also
service middle-income earners, take more risks and operate as a fully fledged
bank that would compete with all other banks yet no other bank competes with
it at micro-lending sphere.

4.4 The bank should also expand its jurisdiction and offer similar services to
SADAC countries where it is evident that there are even more low-income
earners who do not have access to banks. That would amount to growth of the
business at large.

4.5 Capitec could also partner with one of major banks and launch a joint product
that would result in intensifying its market locally and internationally.

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5. REFERENCES

1. Capitec website. www.capitecbank.co.za.

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