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Letshego forges ahead as Gov’t considers bank licensing changes

Letshego group managing director, Christopher Low

After Letshego Holdings Limited’s abortive attempt to acquire a banking license for its Botswana operations, the Group is confident that the eventually, multi tiered banking licensing will see the light of day in Botswana.

Bank of Botswana declined to license Letshego in 2013 as the Group was seeking a deposit taking license as opposed to a commercial bank license, something that was not provided for in the regulatory framework.

“We want to be the pilot company that shows that indeed multi tiered licensing (of financial institutions) is workable,” said Letshego group managing director, Christopher Low, at a press briefing recently.

“We need a deposit taking license we will prove our success in other countries,” said Low, to emphasise that the group will not be pursuing a commercial banking licence in Botswana for the foreseeable future.

“It is indeed true that the (Botswana) Government had engaged a specialist from Ghana and the research was completed; it was realised that they need to separate banking licenses from deposit taking licences,” said Low.

“The next phase is for the Ministry (of Finance and Development Planning) to perform its processes and then take it to Parliament, and we are likely to see a four tier licensing regime, more like what you will find in Rwanda.”

“At the of 2013, I was asked to put together a new strategy and we set out to diversify from just lending to deposit taking, something that required lots of upfront work and capabilities,” said Christopher Low.

Low said that the Group’s focus is on greater financial inclusion, a topical issue in Botswana Government agenda.

He also said that servicing the informal sector in Botswana has always been a challenge due to lack of statistics but “the situation is improving.”

Low said that because Letshego is not a bank it is at an advantage and can explore the lower end of the financial market that is highly subserviced.

“Banks are constrained by many factors such as their risk appetites, regulations and their focus on corporate; because we are not a bank, we can give financial inclusion agenda, the attention it deserves,”

Mythri George, head of corporate affairs at Letshego, also told BusinessPost that, “Research has shown that people use credit to build homes, getting working capital for small businesses and taking children to school.”
“20 percent of Batswana who take out loans with us use them to fund small business.”

Letshego is planning to roll out more simplified solutions for financial services, which will include micro insurance for the informal sector.

The Finscope Consumer Survey Botswana 2014, a Government sanctioned study which was released in July this year, showed financial exclusion reduced by 7 percent since 2009, from 31 percent in to 24 percent in 2014.

The findings also showed that consumers generally use a combination of financial products and services to meet their financial needs – an individual could have a bank account and also belong to a burial society. “Only 7.3 percent of adults rely exclusively on banking services n 31.2 percent use a combination of formal and informal mechanisms to manage their financial needs, thus indicating that their needs may not be fully met by the formal sector alone 8.2 percent of the adult population only rely on informal mechanisms such as village savings and loans groups to save or borrow money,” stated the Survey findings.

Meanwhile, Letshego Holdings Limited’s provisional banking licence in Namibia, which ended mid-July, has been extended by another six months,  The Pan-African micro-lender is currently trading with a provisional banking licence, which was first granted in July 15, 2014.

Currently Letshego boasts the third largest market capitalisation for a Botswana-based company on the Botswana Stock Exchange and is among the top 50 companies outside South Africa, across Sub-Saharan Africa. Having planted roots in Botswana in 1998, the Group is now in 10 countries across Eastern and Southern Africa, servicing over 250,000 customers with in excess of 250 customer service points employing over 1,300 management and staff members.

• Net advances to customers increased by 33 percent to P4.4 billion (2013: P3.3 billion)
• Cost to income ratio increased from 26 percent to 33 percent
• Impairment charges remained within the target range at 1.7 percent for 2014 (2013: 1.3 percent) on average advances
• Profits before tax increased by 1 percent to P850.2 million (2013: P841.3 million), with a 5 year compounded annual growth rate of above 30 percent
• Capital adequacy position remained strong at over 70 percent (2013: over 70 percent)
• Dividends declared during the year equate to 25 percent of profit after tax
• Basic earnings per share decreased by 9 percent due to the conversion of a loan to equity earlier in the financial year
• 158 105 858 shares were issued to Development Partners International by conversion of the loan facility advanced to Letshego Holdings Limited
• 58 percent of profits before tax were generated outside of Botswana (2013: 40 percent)
• Sale of Zambia subsidiary was concluded in December 2013
• Change of year-end to 31 December, will be effected from 2014.

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Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020

This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.

The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.

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Finance Committee cautions Gov’t against imprudent raising of debt levels

21st September 2020
Finance Committe Chairman: Thapelo Letsholo

Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.

He was speaking in  Parliament on Tuesday delivering  Parliament’s Finance Committee report after assessing a  motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.

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Gov’t Investment Account drying up fast!  

21st September 2020
Dr Matsheka

Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.

The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.

The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.

The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.

This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.

Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.

Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.

However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.

Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.

When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.

This  as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.

Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.

The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.

Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.

In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.

Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.

Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.

Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.

Acknowledging the need to draw down from GIA no more, current Minister of Finance   Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”

He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”

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