SHORT VIEW by BATANAI MATSIKA
GetBucks Microfinance Bank recently published its financial results for the year ended June 30 2018 showing a 25,12 percent growth in PAT to USD4,55m on the back of lower impairments and reduced opex. Total assets grew 41 percent to USD31,0m driven by growth of the loan book to USD21,6m from USD15,0m in FY 2017. The loan book constituted of 57 percent consumer loans, SME (Small and Medium Enterprises) loans 38 percent and mortgage loans 5 percent. We note that the business has been aggressively growing its SMEs business whilst focusing on technology having launched retail offerings such as Point of Sales Machines (POS), Zimswitch enabled debit cards and ZIPIT. The Microfinance bank also intends to roll out internet banking and a mobile App with USSD capability. GetBucks Zimbabwe is registered as a Deposit Taking Microfinance Bank and is a subsidiary of GetBucks Limited which holds 50,3 percent of the Company’s ordinary shares.
While GetBucks has been registering some growth, we note that competition in the space has intensified. We analyse the competitive landscape of the microfinance sector in Zimbabwe using Porter’s Five Forces Framework. The model focuses on those forces close to a company that affect its ability to serve its customers and make a profit. It is a tool that assists strategy makers understand the competitiveness of a business environment.
1. Industry or Competitive Rivalry –High & Increasing
We note that the microfinance industry has seen a significant increase in the number of new entrants. As at June 30 2018, the microfinance sector had 196 registered micro-financiers up from 190 institutions as at March 31 2018.
More recently, Empower Bank Limited was registered as a deposittaking microfinance institution (DTMFIs) on May 31 2018, bringing the total number of DTMFIs to 6. The main mandate of Empower Bank is to provide access to finance to young entrepreneurs with the view to facilitating entrepreneurship among the youth.
While there are many players in the sector, we note that the product offering by the microfinance sector remains limited and dominated by micro loans, which constitute a significant portion of the microfinance institutions’ balance sheets.
According to the RBZ, during the quarter ended June 30 2018, total microfinance loans and advances increased by 9% from USD272,9m as at March 31 2018, to USSD297,5m as at June 30 2018. Total assets for the sector grew by 14,38% from USD360,5m in March 2018 to USD412,3m as at June 30 2018.
We also note that some banks in Zimbabwe are positioning themselves by setting SME financing divisions and this has also added to the competition
2. Threat of New Entrants – High & Increasing
We note the profitable margins in the microfinance sector have attracted new firms. New entrants eventually will decrease profitability for other firms in the industry. Barriers of entry in the microfinance sector are limited given the relatively low capital level requirements. The minimum capital level requirement for credit-only microfinance institutions is USD20,000, while that for DTMFIs is USD5,0m.
The government has been looking to promote financial inclusion (access to finance to marginalized segments) and had been encouraging SME lending, which is generally viewed as an avenue to grow local businesses hence creating lasting impact. According to a research by Symbiotics entitled “Small Enterprise Impact Investing, Exploring the “Missing Middle”, more than 95% of registered businesses in the world are small in size. Together, they constitute the largest employer in any given private-sector economy, whether of high- middle- or low-income levels. As a result, there has been a proliferation of MFIs in Zimbabwe.
Generally, the most attractive segment is one in which entry barriers are high and exit barriers are low.
3. Threat of Substitutes – Low
There is a significant appetite for funding from individuals, households and SMEs in Zimbabwe. While MFIs mainly focus on loans, other financing options, particularly for SMEs such as venture capital are difficult to obtain. There has been indications that the government, through the Ministry of Finance may set up a National Venture Capital Fund that will look to provide long-term growth capital for SMEs.
While the threat of substitutes remains low, we note that a substitution that is easy, accessible and cheap such as venture capital can weaken MFIs that focus on SME loans and also threaten profitability.
4. Bargaining power of customers – Weak but increasing
The bargaining power of customers is the ability of customers to put the firm under pressure, which also affects the customer’s sensitivity to price changes. We highlight that the buyers’ power is high if buyers have many alternatives. In the case of the Zimbabwe Microfinance sector, borrowers have limited options given that some large commercial banks do not focus on this segment. The major clients of most MFIs in Zimbabwe are predominantly civil servants and small businesses.
However, with new financing solutions and improved buyer information availability and price sensitivity, customers will in the long term drive down prices and become strong enough to dictate terms.
5. Bargaining power of suppliers – High
The suppliers of capital to MFIs in Zimbabwe have strong bargaining power. Sources of capital include (i) deposits, (ii) loans (notes), (iii) credit lines from other financial institutions (iv) equity capital from impact investors and (v) credit facilities from the RBZ/ Government.
According to the RBZ, total deposits for the deposit-taking microfinance institutions (DTMFIs) subsector increased by 29,6% from USD11,8m as at March 31 2018 to USD15,3m as at June 30 2018. The sector’s aggregate equity decreased by 3,75% from USD143,5m as at March 31 2018 to USD138,15m as at June 30 2018. In addition, as at August 16 2018, a total of USD238,3m had been disbursed under the Reserve Bank production and empowerment facilities amounting to USD451,5m.
We note that suppliers of wholesale funds have the ability to drive up pricing. Currently, the interest rates for borrowing funds from commercial banks are within the range of 12 -18% per annum excluding fees related to administration and processing. Overall, the limited funding base continues to militate against the microfinance sector’s ability to underwrite more business as evidenced by the size of the sector’s loan book, which has remained suboptimal over the years.
The microfinance industry as a whole registered a 1,65% marginal decrease in net profit over the year from USD13,9m for six months period ended 30 June 2017 to USD13,67mfor the period ended 30 June 2018. In addition, 5 creditonly microfinance institutions have surrendered their microfinance operating licenses citing high operational costs and a challenging macro-economic environment.
According to the Zimbabwe Association of Microfinance Institutions (ZAMFI), the top five challenges of great concern to the sector include (i) the high cost of funding, (ii) shortage of cash & foreign currency, (iii) a general rise in cost of operations, (iv) limited product development and (v) the perceived high country risk.
In conclusion, GetBucks is operating in a tough industry. We like the fact that the microfinance bank makes use of technology through its online platforms and has been at the forefront of disruptive technology revolutions in the sector as a strategy of differentiating itself. GetBucks has also launched complimentary products such GetSure that are earmarked at building brand loyalty.
Author – Batanai Matsika Head of Research – Akribos Research Services
+263 78 358 4745
batanai@akriboscapital.com
