Rocky road for microlenders

Half-way through fiscal 2020, two of the largest microfinance companies, Lasco Financial Services Limited and Access Financial Services Limited, have shed nearly three quarters of their earnings, a signal of the pressure facing microlenders in an economy that has shed 135,000 jobs in the pandemic-induced recession and in which many small businesses continue to shutter their operations.

Between April and September, net profit of listed company Access Financial plunged 78 per cent to $61.5 million from $279.6 million, while Lasco Financial’s earnings dipped 60 per cent to $30.1 million from $74.7 million for the comparative period of 2019. Taken together, their bottom lines have shrunk 74 per cent over six months.

Access saw weak results in both the first and second quarters, but Lasco Financial, which is more diversified, saw a recovery of its earnings in the September quarter with profit of $135 million, which served to offset the massive $105 million loss it made in the June first quarter.

The market has rewarded the LASF stock for its September performance, pushing it up nearly 16 per cent in the past two days of trading to $2.68; while Access Financial was initially punished, but regained value to end flat at $22 per share over the same period.

Up to March 2019, the consideration that rested heaviest on the minds of players within the microfinance sector was the bill known as the Micro Credit Act, legislation that is meant to bring regulatory oversight to the sector and place a cap on the interest rates that payday or microlenders charge for loans, by linking rates to Treasury bill yield.

At the time, Marcus James, the founder and CEO of Access Financial, warned that a restriction on rates could end up slowing the credit pipeline to the MSMEs and cripple business for many lenders.

Fast-forward to March 2020 when non-essential businesses were ordered closed by the Government to contain the spread of COVID-19 and companies began shifting staff to remote work while laying off underutilised persons to keep expenses low; that conversation quickly changed to strategies the lenders would implement to keep repayments flowing into the business, along with the preservation of its cash for future eventualities.

It’s now being reported that the Small Business Association of Jamaica has seen 105 of its 300 members, or 35 per cent, closing down their businesses. Beyond the association, the lockdown trend is expected to continue, facilitated by the Companies Office of Jamaica, which has eased conditions for closures, making it a less costly exercise in terms of time and money, through to the end of December.

The pandemic has come at a bad time for Lasco Financial, which closed its past financial year, ending March 2020, at a loss of $57 million and was looking to restore its bottom line.

Access Financial was in a better position, but it, too, recorded a decline in profit, by 26 per cent, at year ending March. The profit fallout continue into the June quarter when the lockdown against COVID-19 was at its peak, falling 80 per cent to $33 million. In the second quarter, profits narrowed further to $28 million, compared with $114 million in the year-prior period.

Although Access Financial and Lasco Financial are both microlenders, the latter company is more diversified, with money services being a key component of its business operations.

The deterioration of Lasco Financial’s bottom line performance was largely due to its subsidiary loan company – Lasco Microfinance – which between April to June booked $193 million in estimated credit losses and up to September saw a 34.5 per cent reduction in revenue.

In fact, the loan portfolios of both businesses shrank with the uncertainties that the market brought. Since March, their loan books have shrank by an average of 14 per cent. The decline is steeper relative to last year September, at 18 per cent shrinkage.

However, as businesses begin adjusting to the new normal, the microfinance companies are reporting better prospects.

“Loan disbursements have shown improvement during the second quarter, as we executed successful ‘back to school’ campaigns in both Jamaica and Florida to digitally equip our customers’ children for the new learning environment,” Access Financial said in its six months to September 2020 note to shareholders. Its loan portfolio is currently valued at $3.89 billion, down from $4.47 billion in March.

Jamaica’s microfinancing sector has roughly 300 operators, who sell loans to high-risk borrowers – such as taxi operators, bar owners, vendors at school gates, micro businesses in general, as well as make personal loans to salaried workers, inclusive of employees of security companies – many of whom saw their livelihoods erode or disappear with the restrictions imposed; and with it, the income that would have serviced their loans.

Lasco Financial’s remittance and cambio businesses, which both produced double-digit growth throughout the pandemic, have provided buffer against the COVID-19 fallout. And the company is now looking to add yet another component to its operations, called Lasco Biz, a service being piloted under the Bank of Jamaica’s fintech sandbox for tech innovations.

“Through Lasco Biz, LASF will give access to an e-commerce platform, allowing merchants to accept card payments electronically on a website or through the use of payment buttons. The platform will also benefit businesses as it will provide them with simplified inventory management and financial statements,” said Lasco Financial Managing Director Jacinth Hall-Tracey.

Once market tested, and on full approval from the central bank, Lasco Financial will make the service available to the general public, Hall-Tracey said.

The microfinance segment of the Lasco Financial Group represents 38 per cent of its total loan book, with 17 per cent of the loans being unsecured. Its loan portfolio, along with other receivables, was estimated at $1.62 billion in September, down from $1.91 billion in March.

karena.bennett@gleanerjm.com