Letshego considers ‘buying’ its way to local banking licence
Apartnership or outright acquisition are amongst options pan-African microlender, Letshego Holdings is considering to realise its long held hopes for deposit-taking abilities in its home ground of Botswana, BusinessWeek has established.
Under local laws, any deposit-taking institutions must apply for a banking licence, something which Letshego tried and failed to do in 2013 and 2018. A banking licence for Letshego in Botswana would reduce the costs of its funding, as it would fund these from deposits.
While it has secured deposit taking licences in many of the other countries it operates in, Letshego abandoned its last attempt in Botswana in December 2018 saying the application needed to be done “at the right time within our journey”.
The group, which has a presence in 11 countries and deposit-taking licences in many of these, has refused to give up on its hopes in Botswana, raising debate on whether the Bank of Botswana’s banking licence regimen is too strict, particularly for indigenous enterprises.
Letshego group CEO, Andrew Okai told BusinessWeek deposit taking abilities in Botswana were something the microlender is “working hard on”.
“We have not closed the door on the opportunity of deposit taking through a partnership or acquisition and we are also exploring other alternatives through other capabilities that can allow us to do that,” he said during a briefing on the group’s full year results for 2020.
“It is fundamental to our strategy and we are going forward to look for opportunities to do that.”
While Letshego wants the deposit-taking ability, it has previously said it does not want to transform into a full on commercial bank which most deposit taking licences in Africa require it to. “The excessive regulations that come with becoming a full bank place a real burden on us because our business is financing the low and medium sector demand,” Okai previously told BusinessWeek.
“The reason we are a bank in some markets is because there is no middle ground.
“Where we are a bank, we are not doing things such as forex and others and we are purely a savings bank.
“We are not chasing affluent clients. Ours is low to middle in mass as well as the SMEs.”
In the year ended December 2020, Letshego’s net advances rose 12% to P10.2 billion, with Botswana accounting for P2.8 billion, while deposits as a group rose 56% to P664 million.
The group’s total borrowings rose to P5.7 billion in 2020 from about P5 billion in 2019, with credit attributable to commercial banks rising to P2.6 billion from P1.9 billion over the same period. Letshego also funds its borrowings from bonds, development finance institutions and pension funds, with group executives noting strong support in the past year.
“We are quite confident with our funding that it can support our growth prospects going forward,” Gwen Muteiwa, Letshego Group Chief Financial Officer, told the recent briefing.
“The mix of funding is also good with development finance institutions and banks, although we would like to increase the development finance institution funding going forward.”
Without deposit-taking ability in its largest jurisdiction of Botswana, however, Letshego has found itself borrowing from the same banks it competes against at some level in the market.