2015 has been another year of growth for the pan African micro lender, Letshego Holdings which saw its profit before tax exceeding P1 billion for the first time.
According to the company’s 2015 end of year financial results released last week, this year’s results show good fundamental growth in an environment of depreciating exchange rates against the Pula for most of the markets Letshego operates in. Excluding a foreign exchange loss for the year of P75.6 million, profit before tax was P1.1 billion, a 5 percent increase on the prior period.
Letshego saw a 14 percent rise in loans and advances, excluding Nigerian and Tanzanian acquisitions in 2015. In its home market –Botswana - despite strong competition it saw an increased loans and advances to customers by 7 percent to P2.2 billion, while Kenya’s smaller and more diversified portfolio increased by 110 percent to P400 million. A number of new products were launched including agriculture supply chain financing, asset financing and micro insurance, as well as enhancements to existing products.
Embracing financial inclusion remains the cornerstone of Letshego’s strategic agenda. In December 2015, Letshego was confirmed as an Alliance for Financial Inclusion (AFI) private partner, making Letshego AFI’s first Africa-focused private partner. AFI is a global network of financial policymakers from over 100 developing and emerging countries, covering the majority of Letshego’s footprint. According to the group’s Chief Executive Officer, Chris Low, “this partnership status is important for the group’s sustainability objectives, as it will enable accelerated dialogue with regulators sharing a common focus on creating policies conducive to financial inclusion.”
Additionally, he noted that, “we continue to seek deposit-taking licences to facilitate our financial inclusion agenda - this includes providing money transfer, bill payment and remittance services, as well as facilitating borrowings for micro and small enterprises for their productive needs. Access will be provided via third party agents and mobile telephony. This approach for enhanced customer experience has already commenced in Kenya, Tanzania, Rwanda and most recently Nigeria.”
Continued investment in people and systems has strengthened the group’s operating platform, with Letshego Mozambique having gone live this year with USSD mobile banking. It is understood that additional customer solutions in partnership with a local mobile operator in Mozambique are planned for 2016, with similar initiatives being progressed in other deposit-taking countries.
“The enhancement of existing products to ensure continued market relevance continues while for micro and small enterprises, agriculture, health and education solutions have been piloted in East Africa,” said Low.
The use of mobile money is also well established in Kenya and following this, similar initiatives will be explored in other geographies with suitable environments, Low added. New developments include the securing of a dedicated Letshego short code number in Mozambique, Namibia, and Rwanda plus registration of Faidika’s customer access points in Tanzania as agencies for the newly acquired Advans Bank Tanzania.
A key part of the group’s strategy is to continue to diversify funding sources - in December 2015 Letshego refinanced R475 million of maturing bonds and raised an additional R180 million. Total ZAR bond issuance including commercial paper now stands at ZAR980 million.
In addition, the Group concluded various other refinancing and introduced new, predominantly Pula, funding lines, which on a blended basis, reduced the annual cost of borrowing to 10.5 percent from 11.3 percent in 2014. As a result debt to equity levels increased to 66 percent; this is in line with the strategic objective to optimise the Group’s balance sheet
There are now four businesses within the group with deposit taking licences: two from acquisitions in Nigeria and Tanzania as well as those established in Mozambique and Rwanda. Low said, “conversion of the provisional licence in Namibia is subject to satisfactory finalisation of certain conditions set by Bank of Namibia and is expected by mid-2016; the evaluation of opportunities for licensing in other countries continues.”
While it is expected that deposit taking will, over time, lower the group’s overall cost of funding, in the short to medium term, the benefits will lie in being able to access the customer’s transactional accounts and thereby offer them a broader based set of financial service solutions.
In December 2015 Letshego announced its acquisition of FBN Microfinance Bank, a deposit taking micro finance bank specialising in financing of MSEs in Nigeria. The transaction was closed on 31 December 2015 and provides Letshego with a national micro finance license that includes deposit taking. With over 80,000 depositors and approximately 10,000 MSE borrowing customers, the bank’s operations are directly aligned to Letshego’s financial inclusion agenda and provide a strong platform from which to grow the group’s business in Nigeria.
“Entry into Nigeria gives an exposure to Africa’s largest economy, while Tanzania provides the ability to provide broader financial service,” said Low.
Despite current market stresses from low oil prices and a weakened Naira, the management indicated that growth prospects in the low-to-middle income customer and MSE segments have significant upside potential.
With over 1500 fulltime staff, over 700 commission based agents; the group’s aim is to continue to deliver on its strategic agenda towards creating a leading African financial services group, with a focus on financial inclusion.