Letshego Holdings has put its banking license disappointments behind to focus energies on the business it knows better, and will be looking to diversify its product offering into funding small businesses and tapping into the unbanked market.
The CEO of the pan African consumer lender, which is quoted on the Botswana Stock Exchange (BSE)ÔÇöwith a market capitalization of P4.9 billionÔÇösaid they will not fold their hands in defeat after their application for a commercial banking license was rejected by Bank of Botswana for undisclosed reasons. Instead, Letshego now sees MSE’s as a key area of diversification. Letshego operates as an non-deposit taking institution, and it wanted to add the deposits arm to its consumer lending business, where it has over 240, 000 customers, with 32, 000 of them in Botswana alone.
“We are not striving to be a commercial bank; payroll deduction will remain core to our business,” Letshego Managing Director Chris Low said at the presentation of the company results.
“In Mozambique, we have a deposit taking license. We will not be re-applying for a license in Botswana as we want to focus on expanding our payroll systems and diversifying our products,” Low added.
Letshego is now studying the market to see how it can finance the MSE sector and at the moment, work is still at initial stages where the lender is doing a micro sizing. The group might copy the example of Micro Africa Limited (MAL), its Kenyan subsidiary that was founded in 2000 and provides financial services to micro-entrepreneurs and low income individuals throughout Eastern and Central Africa. MAL has operations through subsidiaries in Rwanda, South Sudan and Uganda and an associated company in Tanzania. The model proposed by the company was not to get a fully fledged banking license, but the one that can allow them to take deposits; however this has since been turned down by the regulator.
“It was turned down, but we were not told why….A fully fledged license is expensive to have. We believe it adds costs,” said Low.
“We also applied in Swaziland and were turned down. It’s not always that Central Banks explain reasons for disapproving banking licenses applications,” he said.
Low said they have not given up on the deposit taking license, but said the focus is to look at other opportunities. The company raised P350 million from the maiden issue of its BSE listed medium term note programme in November 2013—which will be used to fund growth locally and across the continent. Botswana is Letshego’s stronghold, where it has a 21 percent penetration of government employees and a loan book of P1.8 billion, which constitutes 42 percent of the group’s loan book.
The company said it has discovered that there is a large adjacent customer base that is marginal for commercial banks and embraces financial inclusion. It intends to further expand its target market to include individuals employed by corporates but not captured in traditional bank target markets.
According to Letshego’s full year results for the period ending 31 January 2014, advances to customers increased by 33 percent to P4.4 billion (2013: P3.3 billion) with 54 percent of profits before tax generated outside of Botswana (2013: 40 percent).