The progressive acquisition of a 100 percent stake in a deposit taking financial institution that specialize in micro finance in Nigeria, and a 75 percent stake in another one in Tanzania, heralds Letshego’s entry into the non-payroll financial services industry.
After being granted the regulatory approvals in Nigeria, Letshego’s business operations will get a boost of 28 customer access points and 80, 000 customers, while Tanzania will add five customer access points and over 20, 000 customers. These combined will give the pan African micro-lender in excess of 100, 000 new customers. The acquisitions place Letshego in good stead to grow its operations and footprint in Africa and are in line with the micro lender’s diversification efforts in terms of geographic presence, customer base and product mix.
“This diversification is expected to continue into the second half of the year with some acceleration being achieved from acquisitions in Tanzania and Nigeria,” said Letshego in its latest financial report.
The transition into a non-payroll financing environment introduces Letshego to increased risk, higher operational costs and an increased likelihood of impairments. Speaking at the unveiling of the Group’s financial results for the six months ended 30 June 2015 on Friday last week, Letshego Managing Director-Chris Low revealed that the financial services company made a specific investment in risk management in the first half of the year in recognition of the fact that its operations will be migrating from a low risk payroll system to risky activities around deposit taking. The investment is in the form of new risk management positions in the company. In the new riskier trading environment, Letshego’s objective will be to improve operational efficiencies and scale up controls. However, Low assured shareholders that the company will not abandon its pay roll system as it pursues expansion of its deposit taking activities.
“The pay roll system remains a successful model which the Group will continue to leverage on,” he said.
While the Botswana market continues to dominate contributions to Letshego’s revenue, diversification activities have resulted in a decline in such contribution over the past six years. Botswana’s contribution has dwindled from 71 percent in 2009 to 32 percent in 2015. The entry of Mozambique and Namibia operations into the Group’s business activities is in part responsible for Botswana’s decreased revenue contribution. At US$210 million, Botswana also boasts of Letshego’s biggest loan book across all countries that the micro lender operates in. The success in loan collections stems from the payroll deduction system which Letshego’s focus is pinned on. The micro-lender’s use of the central register, through Botusafe, enables it to deduct directly from the source, in this case government employees. The central register performs affordability and multiple loan tests on government borrowers to reduce the risk of bad debts and confirm the ability of the borrower to pay back the loan. These checks and controls guarantee repayment of loans, hence the success of the payroll model. Low said the model cannot be replicated across countries as it is unique to Botswana.