Letshego bullish in risk averse climate

Brian Benza
Staff Writer | Monday September 13, 2010 00:00

 

At a time when most financial institutions have posted average results characterised by a slowdown in profit growth, Letshego expects its profits for the interim period to be significantly higher than the same period last year, indicative of a strong appetite for short-term loans among the public.

'Letshego would like to inform shareholders that the company expects profit before tax for the six months to July 2010 to be 40 percent higher than in [the] same period last year,' reads a trading update from the company.The results will be announced around mid-October.

Due to the economic crisis, most banks that have released their results over the past two weeks reported a declining rate of growth in their loan books because of restrictive lending policies they adopted due to deteriorating disposable incomes for most households.

However, it seems due to this risk adverse behaviour of commercial banks, most people are turning to micro-lenders for soft loans. Letshego's simple formula - unsecured loans repaid from source - has proved a hit with civil servants and other formally employed people across its African footprint.

Although no comment could be obtained from Letshego on how its business has flourished in an otherwise constrained environment, analysts say apart from the cash injection Letshego received from the disposal of its assets early this year, micro-lenders generally charge very high interest rates which contribute handsomely to their bottom lines.

'Letshego profits could be significantly higher in this period because of a number of reasons, which include the funds they raised from the disposal of their subsidiaries early this year,' says an economist who prefers anonymity.

'On the other hand, commercial banks have been very choosy as to who they lend out to in these days when incomes are under a lot of pressure and salaries have not been adjusted for some time, especially for public servants.

'This has forced most borrowers to turn to micro-lenders whose conditions are usually less stringent. Another factor is that these loan sharks charge very high interest rates that can go up to 120 percent cumulatively.'

In April, Letshego disposed of two of its subsidiaries - Letshego Guard and Letshego Guard Insurance Company - for P57 million when it decided to focus on its core business of micro-lending.

Proceeds from that sale contributed to Letshego Holdings' capital raising initiatives needed to satisfy the appetite for micro-lending domestically and abroad.

The focus on micro-lending will pay dividends for Letshego, with its loan book already grown beyond the P1.6 billion mark.