Pan African micro financing behemoth Letshego is aggressive in its financial inclusion drive to fund those previously left out by mainstream financing institutions. The group’s Head of Banking and Microfinance Tom Kocsis said this week that since the introduction of the strategy in 2013, they have spread the new offering to a number of markets that they operate in, mainly in East and West Africa where they have extended funding to a number of the SMMEs in areas of education, health, agriculture and housing among others. According to Kocsis, this form of financing has gained popularity in a number of countries the reason being that when compared to commercial banks it is easier for the customers to access credit. “We are basically providing financial inclusive solutions to small, micro and medium entrepreneurs across the footprint. We started this diversification process a few years back away from government employees by working with small business owners to improve their businesses and their lives,” Kocsis said. Kocsis says this sector of the group is mostly dominant in East Africa in countries likes Kenya, Uganda, Rwanda and Tanzania where Letshego has a stronghold of providing these solutions as well as in West Africa in Nigeria and Ghana. In the southern sided of the continent, including Botswana where the group started, it has not been able to make more strides into the sector due to varying factors. “In Botswana it has been a little bit challenging because we have been strong at deduction at source and the introduction of micro financing has been a little bit slower,” he declares, adding that the initiative is simply meant for the SMMEs by extending credit to them to finance their businesses. In countries where Letshego has a deposit taking license, Kocsis says they also offer their customers savings services so that they manage their savings and transactions through deposit accounts. Letshego started as a micro lender providing short term loans to government employees and has over the past few years started it diversification drive as it spread deep into the African continent with the view of catering for different customers.
Kocsis says deduction at source remains key for the group and would remain so, however he says it is difficult to compare the micro finance sector with the deductions at source as the former is relatively new in the market. “It is coming from a small base so it is difficult to compare it with deduction at source business. Currently 14 or 15 percent of our entire loan balance that is coming from the SMME segment but is growing at a much higher pace than deduction at source,” he says. This, he says, applies to both organic growth and acquisitions with many acquisitions having been made in the past couple of years including a commercial banking license in Tanzania and a micro finance bank in Nigeria in 2015. Kocsis explains that though the sector is yet to gain popularity in Botswana having been piloted last year by the group, efforts are underway to grow it locally. “We have been here for 19 years doing mainly deduction at source so this is something new to us in Botswana to introduce. Some of the challenges in Botswana that we encountered are because we have been known as deduction at source business, we have had to have constant dialogue with the regulator on how to introduce this side of the business.” Though the local market is totally different from the likes of Nigeria and Kenya, Koscis says opportunities are there in Botswana to provide micro financing to small business owners. “It is a little bit different from East Africa and Nigeria because it is a small market but definitely there is an opportunity to provide these solutions to the local entrepreneurs whether contract financing or various solutions,” Kocsis says. Kocsis says they have identified a couple of opportunities in the tourism industry. ‘In Botswana tourism is one of the largest industries so that is something that we are targeting. We are currently looking at certain tourism companies and have also gone into house financing but again these are some of the things we are currently discussing with the regulator,” he says. Just like the rest of other markets, Letshego – according to Kocsis – is looking into areas of agriculture, low cost housing and education for the local market. “This is still in development stage in Botswana because of the engagement we are currently having with the regulators.”
In rolling out the initiative in the markets that it has been introduced, Kocsis says they started with general financing before identifying key areas within the SMMEs such as housing provision, education eco-system, agriculture and health with the most successful one being education. “We discovered sizeable opportunities in these segments. The reason for targeting these is because of the population and the demographics in those countries because it is as relatively young population as it is the case with the rest of Africa,” says Kocsis. He says in most countries providing agriculture food products to the population is their agenda which is one of the reasons why the sector has been targeted. Kocsis says what differentiates their offerings with what commercial banks and other financing institutions is that their solutions are simple and appropriate to the particular clients’ needs. “We are constantly looking at how we can provide solutions that are responsive to the needs of the customers. So we custom-make some of our solutions as opposed to broader approach,” he says, adding that that is where the company finds an exception in the market due to their approach. This uniqueness, Kocsis says, has led to higher demand of their solutions as compared to the mainstream funding institutions coupled with the flexibility to tailor-make the solutions. Having been introduced in 2013, Kocsis says the diversification strategy is growing very well but cautioned of risks associated with it due to the complexity of it. “The group has been around for 19 years and this is a completely different sector and different risk profile we need to be aware of. So growing it very fast also poses different risks and its more complex than deduction at source business,” Kocsis declares. Without forsaking the deduction at source business, Kocsis believes this strategy is the future of the group and has been identified as that. “We definitely identified this expansion strategy as something that will take the group to the next level and again to broaden our financial inclusion agenda by the diversification.” Kocsis expects the diversification to grow at a faster pace than deduction at source in the process contributing significantly to the group. The group recently acquired a commercial banking license in Namibia and Kocsis believes this would allow the group to diversify into other financially inclusive products. They are currently actively working on introducing saving solutions and those for the SMMEs. The group has banking licenses in Namibia, Mozambique and Tanzania and deposit taking microfinance licenses in Rwanda and Nigeria. Kocsis says the deposit taking license is always in their minds in Botswana and there are constant discussions with the regulator on the options available. The fact the group has already acquired skills in that space gives Letshego confidence that it will eventually get a deposit taking license.