Letshego Holdings, Botswana’s largest home-grown BSE-listed company by market capitalisation and profit, is working on tailoring a version of its highly successful housing microfinance product for the Botswana market. The financial services company has a housing product targeted at low-income earners in the East African nations of Kenya, Rwanda and Uganda, which has performed exceptionally well, growing by 600 percent in Kenya during 2014.
Letshego’s east African micro-lending activities originated from the acquisition of Micro Africa Limited in June 2012, a micro-lending company active in Kenya, Rwanda, Tanzania, South Sudan and Uganda (They later divested from South Sudan due to political instability and from Tanzania since the company already had operations there).
With the success experienced in this region, Letshego Group Managing Director (MD), Chris Low told this publication that he is eager to bring the two business models of deduction at payroll source and micro-lending together across the group’s operations, including right here in Botswana.
In an interview with The Business Weekly & Review, Letshego’s Head of Microfinance Mr. Tom Kocsis explained that the product is slightly different in each country in order to cater for the unique cultures. In Kenya, it is geared toward income-generating property, mostly going to homeowners who partition their houses into units and rent these out to tenants. The financing range is from 1 to 10 million Kenyan Shillings (P100, 000 to P1million). The product functions like a business loan borrowed against the title deed in this environment, Kocsis said, as the money pays for the construction itself and the payment is determined based on how much income the property will generate.
The product is slightly different in Rwanda and Uganda because people in these countries tend to build primary homes before they think of income-generating homes, so in these environments the money is mainly used for extensions on primary residences. In Rwanda and Uganda the maximum duration of the loan is five years while in Kenya it is six years.
“We’re looking at bringing this solution to Botswana because we see the need and it’s very much in line with our vision to provide simple and appropriate financial services to the underserved,” said Kocsis. “And this is a simple solution.
It’s not overly complicated. It is secured by the land but after that it’s really just a loan so there are no multiple criteria to go through. If you want to add a roof or an additional unit to your house you really do not want to go through the months-long waiting period you might be subjected to at a bank.”
The Letshego Microfinance boss said that the only limiting factor is their understanding of the Botswana market in terms of both what is supported by existing policy and regulation around land distribution, ownership, title and collaterisation, as well as what is appropriate for the Botswana population. He adds that due to the relatively low density population, it may appear that land allocation and housing availability is high. However, Letshego would want to understand both the demand as well as regulatory aspects around housing finance within the Botswana context.
Kocsis says the real sticking point around making Housing microfinance successful in Botswana lies in unlocking various deeds of title so that these are legally bondable. He adds that equitable land prices and availability for the group’s target market in urban and peri-urban areas is a challenge. “So, a collaboration between say the Government, who has land, a financier, and a contractor/building material supplier could result in a win-win for all,” says the microfinance boss. Kocsis emphasised that proper research on the needs of the market will inform Letshego on the best way to tailor the product for Botswana. “The point is that the solution we offer has to be simple because we’re targeting a segment whose needs are relatively simple. Once we understand what is attractive and appealing to the average consumer, we’ll be in a position to move forward,” he concluded.