by Anjuli Gupta, MBA '08

Ghana decided in 1990 to establish a stock market. Shortly thereafter, the Founder of DataBank, Ken Ofori Atta, and alum of Morgan Stanley and Solomon Brothers, returned to Ghana to start a company to provide securities research materials in service of the new exchange. One unexpected outcome was that most West Africans wanted the materials for free, and to this day, good research is not only the cornerstone of DataBank, but also still offered for free. Of course, the Brokerage, Asset Management, and Corporate Finance divisions all bring in revenue to the firm.

The vision of DataBank is two-fold: to engender a savings culture, and to create wealth, both for shareholders and in the future. Before visiting Ghana, I would have said that DataBank's mission was grandiose and far-fetched, might I say unrealistic. But having been to the office in Accra, seen it, seen the Ghana Stock Exchange (GSE) with 34 publicly traded companies and bidding on white boards, well, I'm a believer. However, there is a material reason that I'm a believer this firm grew from a $25,000 investment to a company with $120 million under management in just over a decade - significant in a country with a $2 billion market cap for the entire stock exchange. Databank's brokerage unit has had a 55% of GSE market share since 1994.

Asset Management

DataBank's assets under management are growing at phenomenal rates, on the order of 40-50% per annum, going back five years. There are three main products, a fixed-income product, an equities product, and a blended portfolio. All are set up with accessible minimum monthly deposits and the literature effectively educates new investors. The light-speed growth environment of Ghana's financial markets certainly provides an economic incentive for creating a "savings culture."

Research

Research at DataBank is similarly fascinating. Imagine creating all of the ratios that one can find on Google or Yahoo Finance without the assistance of a Securities and Exchange Commission mandated quarterly reporting system. DataBank helped Ghana to establish strict reporting standards, but few companies are publicly traded, so DataBank's research employees create equity research reports on a semi-annual basis by calling CEO's and CFO's to understand the inner-workings of the company. If you look at one of their equity research reports, you'll not see the buy/sell/hold rating and DataBank's counterpoint to company reports. Instead, you'll see P/E ratios, and derivation of a single stock price, which matches the company's report. But I believe that in many cases, DataBank is serving as the company's reporting structure. From the perspective of someone who summered on Wall Street, the lack of access to information is truly wild. And in fact, DataBank is investigating ways to better serve external financial services clients such as banks and asset management firms, because in most cases, it is only by being constantly on the ground that one can assess an investment - unlike the US where any business school student can throw together a range of valuations based on a file full of equity research reports on a company, in Ghana, one needs a deeper insight.

Growth Drivers in Ghana

What is driving this incredible growth? Is it hunger for natural resources from other developing countries? Is it Ghana's inherent trajectory? DataBank believes that the internal factors, the fundamentals of growth are democracy and stability, bolstered by commodities and rich natural resources. That said, they admit that India and China have created a "rethink" on Africa as a whole. And starting now, from such a low base, one can observe that almost any investment opportunity looks great from a returns perspective. IPO's are driven up by oversubscriptions of 4-5x - so the challenge now is to keep one's eyes open to change.

DataBank's Competitive Advantage

Time and again, DataBank stated that its edge was knowing the West African market and the people operating in it. The firm characterized its culture as being "thick skinned" and with a "stomach for risk." DataBank has an internal advantage in West Africa in its exposure to other systems. It is constantly battling with regulators to align Ghana's financial system regulations, which are new and ever-evolving, with those of global best practices. It uses the US and the UK as models, always trying to improve the Ghanaian system and forestall breakages. In Ghana, the Securities and Exchange Commission responsibilities have been taken up by the Bank of Ghana, but under heavy advisement of DataBank (and perhaps other firms like it).

One example of the internal struggle for external competitiveness is found in the capital requirements of banks in Ghana. As oil is discovered and explored in West Africa, and now specifically in Ghana, capital demands made on banks will be higher - oil and gas is an asset intensive industry and hard assets of that scale must be backed by significant capital reserves. The only reserve requirement in Ghana right now is $60 million. If Ghanaian banks are to compete for oil and gas deals with their Nigerian counterparts, they must have reserves of more than $60 million to lend - but policy makers are often more myopic than the entrepreneurial and cosmopolitan leadership at DataBank.

Brilliant Marketing

What struck me most at DataBank was the way that it created a marketing campaign that brought asset management services to all. Recognizing that there was a piece of cultural work to be done to get people who are accustomed to a low level of access to financial services to invest in what are often considered to be higher-end financial services products, the firm uses a Mary Kay or Avon model. Starting with 120,000 initial customers, it turns its customers into a salesforce, and uses its existing advertising budget to pay its current customers for referrals. Referral incentives are paid in credits to the account, so the whole campaign doesn't measurably change the reserve structure of the bank.

In addition, it works through religious organizations. Churches are very important in Ghana, and tithing is very important, even though people are poor. That said, with index returns of 40%-50% a year, both individuals and religious communities stand to gain from using investment vehicles as savings - wealthier communities strengthen churches. So DataBank gives referral kickback to churches as well - every customer who refers three customers gets a $5 credit (equivalent to the minimum monthly contribution). The minimum monthly deposits look similar to tithing amounts, but doing both is much more reasonable with 40% interest - making congregation tithing fatigue much less of an issue.

Conclusion

I can't count the number of times that I heard someone in Ghana say, "God put me in Ghana, why would I do my work any other place." The nationalism, pride, and feasibility of big changes there is inspiring and centering. None of us wanted to come back, and I think it's because as MBA's, we want to make changes, tangible changes. People there are working hard, but each ounce of work is much more likely to have a watershed effect. DataBank is just one example.