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- Posts : 58
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Age : 29
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Comments / 33 Views / Wednesday, 8 January 2020 00:00
Microfinance is a major part of LOLC Group’s business and this achievement has come after carefully-crafted strategies, years of experience and expertise, and best practices. In fact LOLC’s microfinance success model has won many global accolades, prompting many to follow suit. However, it regrets demonisation of microfinance by some vested parties as well as ill-informed officials. In a conversation with Daily FT, LOLC Group Deputy Chairman Ishara Nanayakkara and Group Managing Director Kapila Jayawardena take head-on some of the misconceptions of and allegations against microfinance:
Q: What kind of an impact did the Government debt relief program that took place in 2018 have on the microfinance industry? What is your take on it?
Ishara: It is really disheartening to acknowledge the detrimental impact this debt relief program created in the Sri Lankan microfinance industry. First of all, the eligibility criteria did not have a sound rationale,
LOLC Deputy Chairman
LOLC Managing Director
the industry was never consulted in the planning. It was given only to women, who are residing in 12 districts of specific parts of the country, and for women who had been on default. It raised all these questions: What about the rest of the country? Rest of the customers in other districts? What about male customers? What about those who went that extra mile to honor their payments every month against all odds?
With the announcement of the debt relief program in July 2018, a lot of misinterpretation occurred for political advantage. Some politicians misused the concept for election promises, where they encourage people who pay on time too, to default so that they will be eligible for the debt relief program. This caused confusion and unrest amongst borrowers not just in the 12 districts but across the country, creating massive number of willful defaulters. It created a culture of default that this country never had. I mean Sri Lanka had healthy recovery ratios of over 90% levels in microfinance, which is why we had the attention of many DFIs. The shock this created to the industry and the trickledown negativity is evident to date even after 18 months. And it will take a long term for the industry to recover because it pushed the customer back to the informal lending market as the formal sector was reluctant to increase exposure under these circumstances.
Q: There had been a lot of accusations by the community and even from some reputed media on how NBFIs lead customers to over-indebtedness, to the point where even some fatal incidences have been reported as a result of undue recovery measures by the companies. What are your views on this?
Ishara: First of all, you need to differentiate the markets. The role of microfinance by the formal lenders such as banks and NBFIs are often misunderstood with the repercussions generated by the informal lenders. There are over 35,000 informal lenders in this country and estimates suggest that over 40% of the population has been subjected to it.
People access the informal lending market out of habit, convenience or due to lack of availability by the formal channels as the microfinance segment was largely considered as non-bankable until recently. People borrow from these informal lenders at unbelievable rates and when they cannot service the loans, they lose their assets, income sources and the dignity that leads to irrational decisions. The concept of over-indebtedness stems from this informal lending market which is not regulated, whereas the formal sector is closely monitored by the CBSL, with rate caps in place and responsible lending is encouraged with the involvement of institutions such as CRIB. The NBFI sector has played a pivotal role in eliminating the repercussions created by the informal lenders but is being unreasonably accused due to misconstrued views.
Kapila: As Ishara mentioned, the misinformation circulated in some media about microfinance players in the country is blown out of proportion. Once we took a closer look some of these articles, it became clear that these were published with a small sample size of consumers, highlighting the experiences of a few defaulted micro customers across the board, often with a clear hidden agenda or a political motive. There are, indeed, some reprehensible situations faced by customers who have turned to the informal sector, and there is much to be done in order to regulate this market, but it would not be practical on the part of the government or regulators or any other officials to paint the whole sector with a broad brush.
Ishara: Therefore, what is important is to have a balanced view on the reality. Who is going to scrutinise the positive impact created by this industry? What about all the income sources created? What about empowering all those women/mothers who run the show in the household and now have become the breadwinners? What about the wave of self-made entrepreneurs who directly contributes to the economic activities in the country? Why does not anyone take stock of that?
Q: Tell your side of the story? What is your role in microfinance?
Ishara: Our microfinance model is different to that of conventional microfinance model. So is our social case. In order to comprehend the social case, it is important to understand our microfinance model. We have smaller groups, reasonable loan amounts, and payment patterns that fits best to their cash-flows. We do not hinder the growth of the customer with undue restrictions such as cross guarantees, encouraging them to upscale their eligibility based on the track record. Therefore, our model allows budding micro entrepreneurs to graduate to the SME sector in few loan cycles. Once they become a SME client, they can continue their journey with us, because we are essentially an SME lender from our roots. The model prioritises empowerment of women, widely identified as the most effective route to eradicate poverty and enhance living standards. Because when you help a mother to stand on her own feet, she nurtures the whole family by being the breadwinner, educating children and forming a future. This is the beauty of true empowerment.
This is the reason why our microfinance model has been recognised by many independent international organisations. LOLC Micro Credit Limited (LOMC, now merged with LOLC Finance PLC) was the first Sri Lankan MFI and the 13th in the world to be awarded Client Protection Principles (CPP) Certification from the SMART Campaign (a global initiative which exists to ensure strong client protection practices in the microfinance industry), while LOLC Cambodia PLC was the first organisation in Cambodia to be certified.
CPP is a differentiating factor for us in comparison to our competition. It fundamentally protects the clients from undue interest rates or over charge, makes the customers fully aware of their rights and obligations. Because we are obliged by CPP, we cannot unreasonably charge the customer or change rates as we please like the common industry practices. Thus, to keep up with the competition, we work hard to improve our efficiencies and manage costs. We reaped the benefits of CPP, when both Sri Lankan and Cambodian regulators imposed rate caps, as we were already operating within the parameters while most of our peers faced difficulties.
Our model was also featured as a business case study by INSEAD Business School in their MBA program following an independent study on the Company’s remarkable growth, commitment to empowering women and communities, and outstanding social stewardship reflected in the business model. PRASAC has also been recognised by MIX as a S.T.A.R. MFI whilst both LOFC and LOLC Cambodia are rated the coveted Platinum Grade by the Global Impact Investing Rating system for their impactful business conduct.
Kapila: As a result of our international acclaim and tangible impact on the communities in which we operate, we have been able to foster long-standing relationships with a large array of international funding partners and DFIs, who have been instrumental in raising LOLC’s standards to a global level. This extraordinary role is reinstated by LOLC’s longstanding international funding partners and DFIs such as the Dutch Development Bank – FMO, The French Development Agency-PROPARCO, German Government Agency – DEG and the Asian Development Bank (ADB). With over four dozen international funding partners, with some relationships spanning over 25 years, LOLC has been the entry point to Sri Lanka for most of these lenders. Considering the Group’s ethical business fundamentals, sound financial performance and strong social accord, these multinational lenders use LOLC group as their preferred conduit to achieve their development goals.
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Join date : 2020-01-03
LOLC tipped to make hefty capital gains by selling 70% stake in Cambodia’s largest microfinance venture for Rs. 110 b; initial LOLC investment less than Rs. 50 b
Says transaction surpasses all other in Sri Lankan corporate history, of mega significance regionally
By Nisthar Cassim
With business circles abuzz with news of the biggest corporate Sri Lankan deal worth Rs. 110 billion, it is being said that LOLC Group Deputy Chairman Ishara Nanayakkara is the richest man in Sri Lanka, a tag he told the Daily FT prefers to shun.
On Monday, LOLC formally announced it was selling the 70% stake in Cambodia’s largest microfinance company, PRASAC, to Korea’s biggest commercial bank, Kookmin, for a staggering $ 603 million, or Rs. 110 billion. PRASAC is valued at $ 862 million, and the sales proceeds will be received in two tranches: $ 422 m once the regulatory approvals are met, which is expected to be before or by end March 2020; and the balance $ 181 million in 2022.
As he directly and indirectly controls around 80% stake in LOLC Holdings, the historic deal fuelled speculation that Ishara is Sri Lanka’s richest man. Within weeks of the news of the deal, LOLC rose sharply to be ranked as the sixth most valuable listed entity, up from eleventh place in end November. In the past two days, LOLC’s share price has declined, though the Company believes there is upward momentum.
When the Daily FT met him yesterday for an exclusive interview and posed the question “Are you the richest man in Sri Lanka and how do you feel about that?” Ishara’s response was candid: “I don’t like to be labelled like that. It is an accolade, but not a goal, at least for me.”
Pressed further on what his goals are, he replied with a bright smile, “You will see when we get there.”
Claiming the title of most profitable listed entity in Sri Lanka, with a trillion-asset company and over a billion dollars in equity, LOLC in a short span of time has truly emerged, in the words of Ishara, as a “Sri Lankan global player.” Having grown operations in over 10 countries, 80% of LOLC’s Profit before Tax comes from overseas investments.
The exit from its first overseas investment, made in 2007 in PRASAC in Cambodia, is estimated to deliver hefty capital gains. Market analysts estimate LOLC’s original investment in PRASAC was about Rs. 50 billion, and the exit at Rs. 110 billion proves its original instinct and foresight. PRASAC has a lending book of $ 2.5 billion, $ 1,727 million in deposits, $ 2,987 million in total assets, and a customer base of 418,000 as at November 2019.
Nanayakkara says what was important is not why LOLC sold PRASAC, but to whom, and showcased the profile of Korea’s Kookmin Bank, which has over $ 300 billion assets under management.
“This transaction has brought prominence not just to the Group, but to Sri Lanka, Cambodia, and the business community in Asia,” he added.
LOLC Group Managing Director Kapila Jayawardena, who was associated with the interview, chipped in, saying the deal was a significant milestone for LOLC as well as for Sri Lanka. “This is a classic example of value creation. From a country perspective, look at the amount of foreign currency inflow to Sri Lanka as a result of this transaction. I think it is safe to say that this transaction surpasses all other transactions in Sri Lankan corporate history,” Jayawardena added.
Despite the sale of PRASAC, LOLC still have a foothold in the fastest growing Southeast Asian country via LOLC Cambodia, the fourth largest company in microfinance in terms of market position in Cambodia. This is in addition to operations in the Philippines, Indonesia, Myanmar, Pakistan, and the Sultanate of Oman, and a growing footprint in Africa as well through Sierra Leone. LOLC’s investment pipeline is promising, with handpicked locations such as Egypt, Uganda, India, and some strategic locations in the African and Asian markets. For LOLC, 2020 will be a year of further expansion of its overseas investments.
“With the sales proceeds of PRASAC, we are on a better footing to reinvest in other markets, as well as expedite some of our identified investments in the pipeline. This will broad-base our investment portfolio for long-term value creation. This transaction will further strengthen our balance sheet, and we are very positive about the outlook,” said Nanayakkara and Jayawardena.
They said that given the achievements within Sri Lanka, the LOLC Group has been able to use these triumphs as a stepping stone to establish a presence in several countries within the region, and is well set to become the largest multi-geographic, multi-currency MSME platform in the world. “While LOLC is now on track to be a global player, Sri Lanka has built the foundation for our experience and proficiency and will remain the centre of our operations,” they added.
- Posts : 9
Join date : 2020-01-03
It happens as expected... Guys Keep away from LOLC...
LSE wrote:Yes. It will ... next will be 150...
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Join date : 2014-06-04
ECONOMYNEXT- Sri Lanka’s LOLC Holdings said it has signed two agreements to sell its Cambodian sub-subsidiary PRASAC to Korea’s Kookmin Bank for 603 million US dollars.
Kookmin Bank, the largest commercial bank in South Korea, has signed a share purchase agreement and shareholders agreement with LOLC Holdings, subject to final approval from the National Bank of Cambodia and the Financial Services Commission of Republic of South Korea, the Sri Lankan firm said in a stock market disclosure.
PRASAC is the largest microfinance institution in Cambodia, in which LOLC’s Singaporean subsidiary LOLC International Private Limited holds a 70 percent stake.
LOLC will sell the 70 percent ownership in PRASAC in two tranches; an immediate 422 million rupees and the balance in 2022.
The group also owns LOLC Cambodia Plc, the fourth largest microfinance firm in the South East Asian nation.
PRASAC was LOLC’s first foreign investment in 2007. The group also operates microfinance firms in Myanmmar, Philippines, Indonesia, Pakistan, Zambia and Nigeria.
LOLC’s share price had risen 179 rupees by December 30, from 113 rupees a share before the deal was announced in early-December. The share price has fallen to 169 rupees over the past week. (Colombo/Jan06/2020)
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Join date : 2016-11-28
Age : 40
The Invisible wrote:I am still positive on LOLC. This share can offer some trading opportunities till the conclusion and report of financials after the sale of the subsidiary. Follow the stock price movements carefully.
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I take risks as a Trader and I select stocks based on Tech and daily Cash in/out. Therefore, my methods may not suit u.. so DYO analysis before making any decisions.
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Last edited by NIRMALSG on Wed Feb 12, 2020 6:30 pm; edited 1 time in total (Reason for editing : corrected)
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