Local financial services company, Letshego Holdings Limited, is expanding into Nigeria. The company has made an announcement to its shareholders through the Botswana Stock Exchange (BSE) that it has opened discussions with a deposit taking financial institution for a possible purchase of the latter entity. Should the deal go through, Letshego will acquire 100% shareholding of the entity.
Letshego was incorporated in 1998, is headquartered in Gaborone and has been publicly listed on the BSE since 2002. It is a holding company with consumer and micro lending subsidiaries across nine countries in Southern and East Africa – Botswana, Kenya, Lesotho, Mozambique, Namibia, Rwanda, Swaziland, Tanzania and Uganda.
This publication asked Tlotlo Ramalepa, an analyst at Motswedi Securities, what the implication of this move is for Letshego’s profitability given the sheer size of Nigeria’s financial market. “Frankly, I am not familiar with that market. However, I trust that Letshego has done due diligence assessment before deciding to go into that market. I think the strategy is to acquire a struggling micro lending company, recapitalize it and compete in the Nigerian financial market,” explained Ramalepa. He mentioned that now that a BSE listed company is investing in the Nigerian market, it motivates them to familiarise themselves with the market.
Just, what kind of market is Letshego investing in? According to The Economist Intelligence Unit (EIU), a specialist publisher of information on business developments, economic and political trends, government regulations and corporate practice worldwide, in a report published in February this year, Nigeria has a dynamic financial sector in which a large number of mainly indigenous banks and insurance companies compete for business. Many of these companies, or their corporate parents, are listed on the Nigerian Stock Exchange (NSE).
Notably, the EIU highlights that a longer-term issue is that, despite the country’s large population, the demand for financial services is limited to corporate and high-income consumers. “This means that competition for this limited market is intense. For the sector to expand, the number of bankable households will have to increase substantially—something that is likely to happen only slowly. In the meantime, Nigeria will remain a cash-dependent economy,” reads the report.
The report also states that The Central Bank of Nigeria (CBN) has a “cashless” policy to make more transactions electronic in order to modernise the banking sector, boost the effectiveness of monetary policy and help reduce the informal economy, inefficiency and corruption. However, the report points out, the process will be slow and Nigeria will remain a cash dominated economy for many years to come. “Furthermore, a recent addition of a charge for ATM use could dissuade Nigerians from using the banking system. The potential of the financial services sector remains enormous, and foreign banks are becoming increasingly attracted to the market. This interest is expected to develop in line with the recovery in global financial markets over the next few years, as well as the sale of three nationalised banks by the state owned Asset Management Corporation of Nigeria,” read the report.
With the demand for financial services limited only to corporate and high-income consumers, and the CBN pushing for a “cashless” financial sector to reduce the informal economy, it remains to be seen what Letshego will do to take advantage of the prevailing condition to further grow its profitability.