There is nothing micro about the size of Letshego subsidiaries in Namibia, Mozambique, Tanzania and many other areas the group has expanded to. The group financial results for the year ended 31 January 2014 tells a story of a shift in profitability by local subsidiary in favour of other markets.
The pan-African micro-finance service provider made history according to the 2014 financial results when it recorded that Botswana lost its dominance as the epicenter of profitability of the blue-chip micro lender’s portfolio. Letshego has subsidiaries in Kenya, Lesotho, Mozambique, Namibia, Nigeria, Rwanda, Swaziland, Tanzania and Uganda. Its 10 subsidiaries stepped up to the plate to make Letshego a truly diversified financial services group in African markets.
In 2013, Botswana contributed 60 percent of Letshego pre-tax profit while nine subsidiaries shared the 40 percent.
The 2014 full year financial results show that around two thirds of the group’s pre-tax profit came from Letshego’s subsidiaries, while Botswana realised a little over 40 percent of the P850 million recorded. This is a diversion from previous results as it was the first time for Letshego to records profit outside Botswana, where the company started operations and is headquartered.
In 2013, Botswana contributed 60 percent of Letshego pre-tax profit while nine subsidiaries shared the 40 percent. Under the leadership of former Group Managing Director Jan Claassen, Letshego recorded P841.3 million in PAT (profit before tax). But even then, that 60 percent also reflected a decline in Botswana’s contribution to profitability when compared to the other previous corresponding period. During the year ended January 2012, Letshego recorded P711 million as pre-tax profit, of which 65 percent was a contribution from Botswana.
Currently Botswana contributes around 30 percent to Letshego’s profits before tax, according to Group Managing Director Chris Low when asked during group financial results presentation. He cited emergence of other markets saying they are eating into Botswana pie. He argues that in future, Botswana contribution will continue to decline as a result.
“We are looking at markets like Tanzania and Mozambique, to actually be the top money makers in the long-term,” said Low, responding to a question from The Business Weekly & Review at the just ended financial results presentation.
Tanzania is a growth area for Letshego buoyed by a growing middle-class and a huge population of 49 million. Mozambique also has a potential with a population of 25 million. This publication wanted to know if Botswana’s 2 million population, would not limit Letshego’s gains here, given that transactions and consumption of Letshego services would only be limited to these 2 million people as compared to an country like Tanzania, where it could possible extend its services to 49 million people.
Low admitted that higher population presents more opportunities. Further, he said that the advantage of other markets lies in their financial inclusivity, which allows Letshego to also diversify its product and service offering, for more returns.
diversity of services enables Letshego to diversify its growth, without relying on its core service of lending as it is the case in Botswana.
Letshego started its operations in 2006 in Tanzania operating a lending company called Faidika. However, in 2015, Letshego diversified its product/service offering in Tanzania by acquiring Advans bank Tanzania Limited, a commercial bank with mobile, agency and internet banking.
In Mozambique, Letshego also has a diversity of products. This is the market where Letshego was licensed to be a MasterCard issuer with the ability to access Automated Teller Machine (ATM) services.
Low said that this diversity of services enables Letshego to diversify its growth, without relying on its core service of lending as it is the case in Botswana. Although Letshego was incorporated and commenced operations in Botswana, it only carries out lending transactions only in Botswana.
“Other markets have advantages of a tiered banking system, which gives an allowance for growth in banking without necessarily being a commercial bank,” he said, adding that if that was the case in Botswana, Letshego could have opted for deposit-taking service provision like in other markets, which would accelerate growth beyond lending.
Under a tiered banking system, institutions under the banking ordinance comprises mainly of commercial banks, restricted license banks and deposit taking companies.
Low is of the view that the Botswana market is constraining in terms of growth, because of lack of this financial inclusive system which broadens service offering.
the reduction of Botswana’s contribution into Letshego portfolio does not mean that Botswana is bad performing but rather that growth in other markets is faster than in Botswana.
The central bank rejected an application for a commercial banking license by Letshego. However in other markets such as Tanzania and Namibia, the group is allowed to carry out banking services.
Low said engagements with government are ongoing and that there is hope that a deposit-taking license could be considered in the long term. Further, Head Researcher at Motswedi Securities Garry Juma agreed with Low and said that the reduction of Botswana’s contribution into Letshego portfolio does not mean that Botswana is bad performing but rather that growth in other markets is faster than in Botswana.
“Botswana loan book has been expanding,” he said. However, the market watcher said that levels of growth for Botswana subsidiary are lower than those the market is accustomed to.He agrees that because Letshego does not have diversity of products in Botswana limits its offerings.
