Letshego seeks to diversify revenue streams

MBONGENI MGUNI
Staff Writer | Wednesday April 21, 2010 00:00

 

Since its establishment in 1998, the Botswana-based group's formula has been to offer unsecured consumer loans, tapping repayments at source through deduction codes and arrangements with payroll offices. This formula has seen Letshego's loan book rise to P1.7 billion and after tax profits to P380 million for the financial year ended January 2010.

These profits and assets have been solely underpinned by interest income in Botswana, Swaziland, Uganda, Tanzania, Zambia and Namibia with nascent operations in Mozambique expected to warm up this year.

A move from over-reliance on interest income echos similar initiatives by most commercial banks that found their interest income - their traditional revenue source - under pressure during 2009. In a period of economic recession, interest income is often adversely affected by rising impairments as customers failed to service their loans or become insolvent.

Letshego's impairment charge for the year ended January 31, 2010 was 3.2 percent of the loan book and has been described by analysts as 'reasonable'.The micro-lender revenue diversification should help insulate it against competition from banks, which have been impacting on its interest income. Banks have increasingly lowered their lending threshold and criteria, tapping into a segment of Letshego's clientele base. Letshego is also under pressure to compete with interest rates offered by banks from which it also borrows to sustain its business.

Letshego Holdings Group Managing Director, Jan Claassen, told Mmegi that going forward, the group will seek alliances and acquisitions to drive its non-interest growth.

'We have other services and revenue streams that are not focussed on interest, but rather volumes. If we can provide services that people need to use continuously, they can help our revenue diversification,' he said.

Elaborating, Claassen said the initiative to move from reliance on interest income was part of a broader strategy to diversify Letshego's revenue base. 'It's not so much about moving away (from interest income), but about expanding away from the government worker base. Many times, what happens is that big institutions already have arrangements with the banks to get loans for their workers, which makes it difficult for us to compete on interest rates because we borrow from the banks and add to our margin.

'We have identified certain possible acquisitions or strategic alliances, and until we have more finality, we cannot say any more. As a group, we want to diversify. We don't want to disturb the existing business, but rather add to the Letshego business. In theory, it could be a banking arm which can then run next to the consumer lending business,' said Claassen.

The MD said more details on possible alliances will be availed in October when Letshego presents its interims. 'It's very difficult to say anything about our strategy at the moment because it depends on whether we can reach agreements. Hopefully, by October you will be able to get more feedback about that,' he said.

Letshego Holdings Chief Financial Officer, Colm Patterson, said: 'There are opportunities that are being pursued. These things can happen quickly or they can take time. While the group is a very successful lending business which we want to grow going forward, we are also looking at other initiatives to make it more broad-based.'

While Letshego's diversification details are sketchy, it is unlikely that these will involve any further forays into the insurance industry. The micro-lender recently finalised a P57-million sale of two insurance subsidiaries to Botswana Insurance Holdings Limited (BIHL).

Letshego presently has more than 130, 000 clients spread across its African footprint.