LOLC Holdings Plc, Sri Lanka’s second-largest publicly traded company by revenue, plans to sell its 70 per cent stake in Prasac Microfinance Institution Ltd, which also counts Hong Kong’s Bank of East Asia Ltd. as a shareholder, LOLC deputy chairman Ishara Nanayakkara said.
Nanayakkara told Bloomberg that LOLC Holdings Plc plans to sell its stake in a unit in Cambodia and use the proceeds to fund the acquisition of microfinance firms in emerging markets from Brazil to India.
“It is very large as a microfinance institution. I think Prasac needs to move to a bank,” said Nanayakkara in an interview with Bloomberg at LOLC’s headquarters in Colombo.
“The company’s thirty per cent return on equity in Cambodia, which has a largely dollarised economy, makes it attractive, he said.
As of 2018, Prasac’s total assets amounted to $2.37 billion. Outstanding loans amounted to $1.96 billion while total deposits reached $1.29 billion.
By the end of last year, Prasac had installed more than 126 ATMs, 498 point of sale (POS) terminals and had amassed 11,200 mobile banking users.
The deputy chairman of Cambodia Microfinance Association Bun Mony denied on Tuesday that the plan would negatively impact Cambodia’s microfinance institution (MFI) sector, noting that it would, in fact, attract investors to join the financial firm.
“It is not uncommon for a shareholder to take out their stake and invest in other projects. I don’t see it impacting the MFI [sector], including Prasac,” Mony told The Post. “I believe a new shareholder will commit to making the institution [Prasac] grow,” he said.
For Nanayakkara, who runs two MFIs in Cambodia, selling Prasac, the Kingdom’s biggest microlender, will help reduce risk as the market saturates. More than 70 registered MFIs compete for business in a country with 16 million people.
With a median outstanding loan of $3,370 a borrower, Cambodia has the world’s highest level of small-ticket debt, according to a World Bank report released earlier this year.
The managing director of Micro-Credit Ratings International Ltd Sanjay Sinha told Bloomberg, “there isn’t much scope” for microlenders to expand in Cambodia.
“Loan sizes have been increasing. As a result, the portfolio has been going up, which itself can lead to dangers of indebtedness.”
Bloomberg reports that next year, LOLC, which gets about 84 per cent of its pretax income from overseas, plans to expand into Uganda, Kenya, Tanzania, Zimbabwe and Mozambique.
The company is also close to acquiring a firm in India’s Tamil Nadu state, and is seeking opportunities in Brazil, Nanayakkara added.
“What we are trying to create is the world’s largest microfinance platform,” he said.
To fund growth, Nanayakkara plans on selling a stake in a unit in Singapore to a strategic investor or private equity funds “probably” in 2021, he shared.
Prasac had a bad loan ratio of 0.7% last year. This, according to Nanayakkara, is because of the company’s focus on women.
All over the world at “the bottom of the pyramid, women with entrepreneurial spirit want more money,” Nanayakkara told Bloomberg. “So with each loan cycle, we upscale her and make sure she doesn’t over-expand.”
Prasac Microfinance Institution Ltd senior vice-president Say Sony declined to comment on Tuesday.