The first quarter of the financial year 2020 is already promising for LOLC as it surpassed $ 1 billion in equity to become one of the first corporates in the country with a billion-dollar equity base. Notwithstanding the deteriorating macroeconomic conditions in Sri Lanka, LOLC thrived to showcase uninterrupted financial stability with an asset base of Rs. 1.14 trillion along with an equity base of Rs. 190 billion. The Group recorded an impressive PBT of Rs. 12 billion and PAT of Rs. 10 billion in the first three months of the current financial year. This includes a negative goodwill of Rs. 5.2 billion from the acquisition of one of the largest sugar production plantation companies in Africa, reaffirming the Group’s strategy in international investments.
The Group’s local financial services companies – LOLC Finance PLC, Commercial Leasing and Finance PLC, and LOLC Development Finance PLC – took a proactive approach in facing the prevailing macroeconomic challenges in Sri Lanka over the past 18 months. A conscious decision was made to control lending and focus more on recoveries and improving portfolio quality. As a result of this short-term strategy, there had been a swift positive impact on portfolio quality as NPLs have been maintained well ahead of industry averages, with Group level NPLs showing a marked improvement from the previous two quarters. This improvement is significant given the magnitude of the combined portfolio under consideration of Rs. 689 billion.
The regional expansion of the Group has also delivered extremely strong results, diversifying and balancing the exposure LOLC had to the local market.
LOLC was the first financial institution in Sri Lanka to venture offshore in microfinance with its maiden investment in Cambodia’s largest MFI- PRASAC.With an ROE of 28%, a portfolio of $ 2.4 billion, a deposit base of $ 1.6 billion and a significant contribution to the Group’s bottom line, PRASAC offers substantial return on investment in dollar terms through the Group’s 70% holding in PRASAC.
Although a relatively new entrant to the Cambodian MFI performers, LOLC Cambodia (LOCAM) has now positioned itself as the most profitable MFI in Cambodia with an ROE of 32%, ROA of 4.2%, and the fourth largest portfolio and deposit base of $ 621 million and $ 354 million, respectively. Steered by LOLC Group’s considerable expertise and guidance in microfinance, in less than five years, LOCAM has risen up the ladder to become the second contributor in profits within the Group’s MFI portfolio, with a 15% share in Group PBT for the quarter ended in June. The Group owns 97% of LOLC Cambodia.
LOLC Myanmar, a greenfield operation and the first of its kind from Sri Lanka in Myanmar, has now become the third largest MFI in the country with an asset base of $ 64 million, a portfolio of $ 50 million, and a growing deposit book of $ 8 million. Through this rapid course of growth, the company has now gained attention from the prominent global investors due to its unique business model reflected through the quality portfolio and the growth potential in store with the liberalisation of the Myanmar market.
LOLC’s role in the microfinance arena had been endorsed by many independent organisations. LOLC Finance PLC was the first in Sri Lanka and the 13th organisation globally to obtain the client protection principle (CPP) certification of SMART campaign (a global initiative which exists to ensure strong client protection practices in the microfinance industry), and LOLC Cambodia was the first in Cambodia to be certified on CPP together with its platinum-grade rating on the Global Impact Investing Rating system for their impactful business conduct. LOLC Myanmar, again, is the first in Myanmar out of 174 MFIs to obtain the coveted CPP in their profile.
LOLC’s success story is being used as a case study in the MBA program of the prominent INSEAD business school, while PRASAC is recognised as a S.T.A.R by MIX among its proud list of achievements. These accolades are one of the many testaments to the unprecedented social stewardship created by LOLC Group through their diversified SME and micro investments in the region. The long-standing relationships with nearly 100 development financial institutions and the like-minded investors as their preferred conduit, global partnerships with other astute enterprises as their chosen equity partner, and transparency and good governance recognised by different regulatory bodies across the globe are some of the other facets of the unique business model of LOLC that have provoked financial inclusion among a 900 million population just in the countries it operates.
To this effect, LOLC was invited by the Government of Pakistan and the Sultanate of Oman and offered the majority stake of the Pak Oman Microfinance Bank. LOLC was one of the few bold investors to venture into the Pakistan market, an underpenetrated economy with limitless potential. Today, Pak Oman has an asset base of $ 28 million and a portfolio of $ 9 million with a footprint of 55 branches in less than two years of operation. With careful risk appetite and use of group synergies, LOLC aims to position Pak Oman as one of the instrumental players in Pakistan with a commitment to empower grassroot-level entrepreneurs and thereby eradicate poverty.
Last year, LOLC invested in Indonesia by acquiring the controlling interest in PT Sarana Sumut Ventura (SSV), a venture capital business with one branch. In just a few months post investment, LOLC has established a brand-new micro book of $ 2.5 million with 29 branches in the pipeline in the regions of Java and Sumatra Islands.
Invested in 2018, LOLC ASKI Finance and LOLC Development Bank are the access points to the Philippines markets. Covering both North and South Island of Luzon and a target market segment of Micro and SME, the two companies are ambitious to develop a sound portfolio and a footprint of 50 branches by the end of 2020.
The Group’s strong background in creating customised, inclusive financial solutions for SME and Micro markets ensures the creation of an innovative and effective product mix, which LOLC is able to transfer into its new investment sectors as well as overseas ventures. Given its origins as the pioneers in the leasing business in Sri Lanka, the Group consistently challenge itself to continue this momentum, becoming the first to introduce micro insurance in Sri Lanka along with tailored services catering to the bottom-of-the-pyramid like Cambodia and Myanmar, where the Group has recently acquired a licence as an insurance operator. By empowering grassroots level entrepreneurs and widening their access to sustainable financial services, LOLC Group has long functioned as a catalyst to transforming communities thereby advancing economic growth for all.
Complementing its performance in the financial sector, LOLC Group also recorded steady progress in the non-financial sector through diversified investments in growth sectors both in Sri Lanka and overseas, in Sierra Leone and Maldives. Sunbird Bio-energy Sierra Leone Ltd. is the highlight of the overseas expansion strategy, comprising 23,500 hectares of an integrated farm that generates power, sugar and bioethanol, and is one of the largest agricultural projects in the African continent.
Other sectors in the Group delivered moderate results with the leisure sector suffering a significant impact on the operating hotels’ occupancy levels since the April terrorist attacks, and the rest of the properties both in Sri Lanka and in Maldives being at a stage of development.
The trading sector, consisting of the Browns Group, and the plantation sector saw a dip in their performance in line with the negative economic pressure prevalent in the country.
Commenting on the Group performance in the first quarter of 2020, the Group Managing Director and CEO Kapila Jayawardena stated: “We are extremely satisfied with our financial performance. LOLC is now a trillion-asset, a billion-equity company with consistent healthy profitability. We have always raised our own bar not just in financial performance, but in our social responsibility and in governance standards. The agility of our business model, together with our carefully diversified portfolio, and above all, our human capital are the critical success factors of our unblemished track record.”
Today, with the regional footprint in Cambodia, Myanmar, Pakistan, Indonesia and Philippines, LOLC has fully established itself as a strong regional financial conglomerate. With this standing, the Group is poised to be a global financial catalyst with a multi-currency, multi-geographic microfinance and SME platform in the future.