For the second time in little over a year, Letshego, a bank serving Africa’s small-loans market, has made an acquisition in west Africa. After its December 2015 purchase of Nigeria’s FBN Microfinance Bank, Letshego has decided to acquire afb Ghana, a financial services business founded in 2010 and aimed at salaried government employees.
Letshego will pay about $9 million for afb Ghana – 1.2 times book value. The money will come from cash reserves rather than new debt issuance. Though afb is no financial services giant, as the price tag suggests, Letshego sees in this acquisition an opportunity to enter a highly promising market.
“Ghana, as one of the larger west African economies, is a natural extension, [Letshego] having already entered the Nigerian market,” Christopher Low, managing director of Letshego, tells Euromoney. “The acquisition was about finding the right vehicle to enter that market.”
Afb Ghana has 60,000 customers, over 25 branches across the country and a little over 200 employees. Letshego will look to quickly grow that business.
Arnold Parker, afb Ghana’s managing director, says: “While we have a profitable and successful customer delivery model, we look forward to the innovations and capacity-building that Letshego’s engagement will bring to our business, the Ghanaian people, and the economy.”
Discussions over a possible acquisition of afb started in early March 2016, Low says. He adds that Letshego and several other firms bid for afb in an auction process. The seller, Jumo World, was advised by Verdant Capital. Afb Ghana was the last business Jumo owned in consumer lending, having divested from other such assets in other parts of Africa, as it transforms into a pure fintech firm. The central bank of Ghana approved Letshego’s acquisition of afb Ghana at the end of last year.
The purchase is part of Letshego’s broader push to expand its reach across the continent. Just over a year ago, the firm made its first purchase in west Africa. Before that, it had already grown well beyond its base in Botswana – where the firm was incorporated in 1998 and where it has been listed since 2002, for a market capitalization now totalling about $450 million. Letshego is now in Kenya, Lesotho, Mozambique, Namibia, Rwanda, Swaziland, Tanzania and Uganda.
“Our ambition is an Africa-wide one,” Low says, eager to see Letshego overtake rivals – among them Finca – and become the continent’s “leading inclusive finance group”.
Letshego’s strategy for geographical expansion relies mainly on acquisitions of existing businesses. “We’ve learned over time that inorganic is usually a more efficient entry route than starting from scratch,” Low says.
Before the acquisition in Ghana, Letshego had over 2,900 employees, 320,000 borrowers and 100,000 depositors through 290 branches and customer access points.
The core business of Letshego is lending to government employees. That model works well because civil servants are more likely than most other workers to receive their wages each month, increasing the likelihood of repayment. By partnering up with governments, Letshego is able to recover the principle and interest from its loans directly from the salary of the civil servants who have borrowed from it.
Afb fits that mould very well, as it is focused on government deduction-at-source lending. The firm is partnered with Controller and Accountant General – the department that advises the Ghanaian government on accounting matters – as well as the Ghanaian police and armed forces and the Volta River Authority – the Ghanaian power generation and distribution utility – to offer its products to their staff.
Afb Ghana is licensed by the central bank of Ghana as a non-bank financial institution. Low says he doesn’t think this type of licence overly limits afb’s activities, but he says Letshego will check if another licence may prove more appropriate, especially since Ghana is going through some regulatory changes at the moment. In any case, afb’s licence already allows it to take deposits, which is important to Letshego.
Apart from the fact afb fits the Letshego business model, Low points to the firm’s good management, profitability and “pretty clean” portfolio – identified by due diligence during the bidding process – as arguments for the takeover.
Afb also has expertise in mobile banking – another important factor for Letshego, which, by its own admission, has been relatively slow to adapt to technological developments for better financial inclusion.
Letshego’s loans range from $500 to $60,000. Letshego diversified its offering in 2012 through the acquisition of Micro Africa Limited in East Africa – providing loans to micro and small entrepreneurs (MSEs), collective groups, as well as to low- and middle-income earners.
In addition to Letshego’s deposit-taking activities in Mozambique, Namibia and Rwanda, the firm has added microfinance banking to its activities in Nigeria and Tanzania through the acquisition of banks already operating in MSE sectors there. Overall, the group’s activities include savings, borrowings, payments and micro-insurance.