A capital injection into a loss-making subsidiary can initially appear to represent continued exposure to a business that has yet to generate adequate returns. However, the investment rationale can be different when the subsidiary provides access to an established customer base, distribution infrastructure and underserved market segments that would be costly to develop independently. Old Mutual’s capital support for Faulu Microfinance Bank in Kenya therefore illustrates how financial groups can assess subsidiaries based on both current financial performance and their broader strategic contribution to the group.
Faulu forms part of Old Mutual’s integrated financial services operations in East Africa, alongside its insurance, investment and savings businesses. Old Mutual’s 2024 annual report identified the completion of Faulu’s remodelling as one of its strategic activities and positioned the group around an integrated model covering insurance, investment, banking and savings solutions.
This structure changes the way the value of a banking subsidiary can be assessed. Faulu’s contribution to Old Mutual does not necessarily depend solely on the earnings generated from lending activities. The bank also provides a distribution platform through which the group can reach customers with savings, investment and insurance products. The relationship is already reflected in products such as the Faulu Money Market Fund, illustrating how a banking relationship can potentially be extended into investment products.
The strategic value of this distribution model becomes more relevant as financial inclusion expands and customers increasingly use multiple financial products. The World Bank’s Global Findex 2025 reported that 79% of adults globally owned an account in 2024, up from 74% in 2021. The report also highlights the increasing role of mobile connectivity in expanding access to financial services, while Sub-Saharan Africa continues to have the largest share of adults relying exclusively on mobile-money accounts.
For integrated financial groups, this creates an opportunity to increase the economic value of individual customer relationships. A customer initially acquired through a lending or savings product can potentially be offered insurance, investment products, payments and other financial services. The resulting revenue opportunity can therefore extend beyond the profitability of the initial product and increase the lifetime value of the customer.
The broader African financial sector provides another illustration of the importance of distribution and access. The African Development Bank approved a USD 310.0 mn financial package for FirstRand Bank to expand financing to micro, small and medium-sized enterprises in South Africa. The package comprised a USD 200.0 mn facility for MSMEs, USD 100.0 mn for women-owned and women-led businesses and USD 10.0 mn for women-owned agricultural enterprises.
The comparison highlights a broader feature of financial sector investment, distribution networks and customer access can themselves represent strategic assets. FirstRand provides an established channel through which development finance can reach underserved businesses, while Faulu provides Old Mutual with access to Kenyan customers that can potentially be served across multiple financial-service categories.
However, strategic importance does not remove the requirement for financial discipline. Continued capital allocation creates value only if additional investment ultimately produces stronger earnings, improved operating efficiency or an adequate return on the capital deployed. Old Mutual has also identified capital optimization and improving return on net asset value among its strategic priorities, making the efficiency of capital deployment an important consideration when assessing further investment in subsidiaries.
The case therefore highlights a broader principle in financial analysis, capital invested in a subsidiary should be evaluated not only by its immediate profitability but also by the strategic assets it creates and the future cash flows those assets can generate. In financial services, customer relationships, distribution infrastructure, data, product cross-selling and access to underserved markets can have significant economic value before they are fully reflected in reported earnings. For investors, the key question is ultimately whether the future value generated by these strategic assets can justify the capital committed today.
