COMPANY PROFILE
2015
Letshego
www.letshego.com | +267 364 3000
company profile
Leaders in accessible finance Editorial: Ajuanne Payne
In 17 short years, Letshego has established itself as a trusted provider in the unsecured loans market across Southern Africa. Letshego has experienced fast rates of growth since inception and has made finance options accessible to individuals previously limited in their choices…
Letshego, founded over 15 years ago, is one of the main frontrunners in the unsecured loan market in Botswana and across Southern Africa. As opposed to the more traditional assured loans offered by banks and backed by assets, unsecured loans don’t require lending to be backed, relying on assessments of the individual’s ability to make repayments. These types of loans open up financing options for lower income and MSE consumers who might otherwise not be able to access lending, and as leaders in this market in the region, Letshego is there to lend a helping hand. Letshego Holdings has subsidiaries in 11 countries across the African continent, with further expansion plans on the horizon. This growth has
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been achieved in just ten short years – the company only began its cross-border operations in 2005. Letshego CFO, Colm Patterson, says that this success could be attributed to the company spotting a niche in the market where there would be demand for its services. “Set up in 1998, Letshego set out to provide unsecured loans to individuals, because generally at that time the banks only focused on providing secure and corporate loans. “The company listed on the Botswana Stock Exchange (BSE) in 2002, and from 2005 onwards we started our African expansion and we are now in 11 different countries across southern and eastern Africa.” The company also offers covers services spanning funeral cover, vehicle finance and executive finance and has plans for expansions into micro-banking,
Letshego
however its core offering is very much focused on providing unsecured loans to individual customers. “Our core product is the unsecured loan to the individual,” says Patterson, “we give loans up to five years in duration, with the maximum loan size roughly at $35,000. It is consumer finance, we are giving individuals the opportunity to borrow on reasonably straight-forward terms, and our only credit risk is ‘will the individual remain in employment for the duration of the loan?’”
A FRAMEWORK FOR SUCCESS In an industry that is seen as somewhat of a risky business, Letshego has in place a comprehensive strategic framework in order to ensure repayment in an efficient manner. This is facilitated by working closely with
customers and employers - Patterson explains the model further: “We use a business model known as ‘deduction at source’; what this means is we have an agreement with employers that in order to repay the loan, monthly instalments are deducted directly from an individual’s salary and paid directly back to us,” he explains. “The deduction at source business model is wellestablished in South Africa, and whilst Letshego was the first to do this in Botswana, we’re not the only company with this arrangement. Other financial service providers now have the same arrangement with employers and government, so it is becoming very competitive.” The process of deduction at source is an efficient way to avoid issues surrounding late or missed repayments and provides a level of security for a
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company profile
company operating in the unsecured loan market. Patterson explains that Letshego “has a robust approach when issuing loans. Letshego has built a credible brand and a great reputation through its approach to lending; our internal processes are robust and aimed at ensuring that customers are assisted in a timely and efficient manner thereby avoiding over-commitment of customers. “Also, if you walk into one of our branches in the morning, there is a good chance you could have approval on a loan that same day. The fact that people know where they stand with Letshego is very important,” says Patterson. “The reason for people taking out loans vary, it isn’t your typical loan whereby the bank will ask you what you want to use the loan for, we generally don’t really ask, but we have noticed over the years that people use loans for school fees, improvements on properties, vehicles and starting up businesses, but people also use them for things like holidays, so
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it really is quite varied.” Letshego’s roots are in servicing government employees – a customer base that to this day still makes up the majority of its clients. The company began its operations with an agreement to service government employees in Botswana. Patterson explains the relationship further: “The largest employer in Botswana is the government, which is where the majority of our customers work. We therefore started off with an agreement with government to provide loans to those employees that needed them. “The motivation from the government’s perspective was that some of its employees would need a loan for one reason or another, and at that time the banks would not provide them, which would result in the employee asking the employer for a loan.” Letshego has continued to nurture this public/ private sector relationship in the years since and
Letshego adapted this model in the course of its expansions on the African continent.
business practices and safeguards it can mitigate successfully against the slightly elevated risks being an unsecured loan lender exposes it to.
ASSESSING THE RISK Understandably, unsecured loans are generally considered higher risk for both the provider and the consumer as there are no assets for the lender to access should the client default, and for the client as they typically of a lower income and more likely to encounter circumstances that make them unable to keep up with repayments. Letshego understands these risks and has systems in place to lessen them, while still providing a high level of service for its clients. Patterson explains further: “What’s very important is not to overdebt individuals and there are processes in place to ensure this doesn’t happen, for example in Botswana individuals can only have one loan that goes through payroll deduction.” “There are also safeguards in place in terms of minimum take-home pay, which is set out by government. These principles are enforced by an independent central registry that plays a very important role.” Minimum take-home pay is self-explanatory - set out by government to ensure that an individual takes home enough pay to cover all their household needs is a specific minimum amount which also prevents loan companies from deducting charges and repayments that the customer cannot afford and would leave them in a bad situation. Not just because it is obligatory to, but also on principle Letshego stringently adheres to these regulations and works hard to also ensure other companies conduct themselves similarly: “We are actively involved in lobbying governments where these processes aren’t already in place, because we believe that it is in their interest as a responsible employer and our interest as a responsible lender to ensure individuals are protected,” says Patterson. Letshego also has its own processes to ensure it protects itself from unnecessary risk. Patterson explains further: “We are giving individuals the opportunity to borrow on reasonably straightforward terms, and our only risk is ‘will the individual remain in employment for the duration of the loan?’ We therefore have processes in place to assess the likelihood of this.” As the majority of its customer base is employed by government, Letshego is somewhat protected by this factor alone, so in combination with its strong
A CROSS-BORDER FOOTPRINT Letshego has offices spread across Sub-Saharan Africa and has plans to expand further, both in footprint and services. “Our existing businesses are at various stages, for example some are fairly mature whilst others are just starting up with major growth potential, so the first stage in our expansion plans is to continue to grow those existing businesses,” Patterson explains. With further expansion across the continent in to Zimbabwe, Malawi, Ghana and Nigeria on the horizon, the company is also introducing a range of new services. “In certain areas we are looking to apply for commercial banking licenses which would allow us to broaden our product range and offer a wider variety of financial services. This is important because the market is becoming extremely competitive and we want to stay ahead of the competition by offering services that are relevant to
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company profile
our customers,” Patterson explains. “In Botswana and Namibia we are the market leader in terms of deduction at source loans, in other areas we have managed to grow our business quite significantly, but the market is becoming very competitive. More and more organisations are targeting the market, and banks are also becoming very aggressive in this area also.” Letshego has already established itself as a leading player across its entire footprint and has built up a high level of trust with its clients and within its government partnerships. Because of its existing footprint, further growth will be fairly organic for the lender.
A STRATEGIC FUTURE PLAN One of the company’s more recent acquisitions Micro Africa Limited in 2013, the mother company of Rwanda Microfinance saw the company rebrand to Letshego Rwanda Ltd., and is one aspect of the company’s plan to expand further in to micro-banking
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and deposit taking. This acquisition not only positions Letshego to serve consumers who previously had limited access to financial services, but is also a step towards further growth and potential diversification. Jan Claassen, Managing Director of Letshego since 2013, comments further, saying that this move towards micro-banking “is a first step to our diversification plan into a broader micro-finance firm with a financial inclusion agenda.” Last year the company received a provisional banking licence in Namibia, worth P6.5 billion, similar to the one they also hold in Mozambique. In the years to come Letshego is also setting its sights on further expansion in to West Africa and Southern Africa – specifically countries like Zimbabwe, Malawi and Zambia, further cementing its position as a financial services leader in the region and servicing the needs of MSE and low income individual customers
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