07 Sep 2016
In a strategic move that will have significant impact on its future profitability, SET-listed digital finance firm Group Lease Public Company Limited (GL) is expanding into the huge and potentially lucrative Microfinance market in Myanmar by partnering with a leading Sri Lankan financial group, the Commercial Credit & Finance Plc.
GL Chairman and Chief Executive Officer Mitsuji Konoshita announced at a press conference in Bangkok on September 7 that GL Holdings (GLH, GL’s holding company based in Singapore) is taking over 71.9% of BG Microfinance Myanmar Co., Ltd., a subsidiary of the Sri Lankan financial group that has been operating a successful Microfinance business in Myanmar over the past two years.
The takeover is pending due diligence of the Myanmar firm which is due to be completed shortly and profits from the Myanmar operations are expected to be consolidated into GL’s books starting from the fourth quarter this year, Mr. Mitsuji said.
GLH in effect will buy the majority stake in the Myanmar firm from B.G. International Private Ltd., a private holding company also based in Sri Lanka owned by Mr. Roshan S. Egodage that is affiliated with Commercial Credit. The remaining 28.1% in the Myanmar firm will be retained by Commercial Credit, of which Mr. Egodage serves as Chief Executive Officer.
“We are very pleased to enter into this collaboration with Commercial Credit, a publicly listed company on the Sri Lanka stock market which is one of the country’s most successful and respected finance companies,” Mr. Mitsuji stated at a ceremony in which he and Mr. Egodage signed a Memorandum of Understanding (MoU) on the transaction.
A market leader with about one million Microfinance customers, Commercial Credit has won numerous awards including Best Microfinance Company and Best Brand 2015 Awards in Sri Lanka. It is projecting a US$22 million net profit this year.
Myanmar represents the fifth country in GL’s regional footprint. From a simple motorcycle leasing company based in Thailand, the company has developed into a cost-effective and efficient digital finance firm and successfully expanded into the neighboring countries of Cambodia, Laos plus Indonesia.
GL recently announced a record-high Q2 net profit of 255.85 million baht, raising total first-half profit to 478 million baht. Senior executives have expressed confidence that a previously announced target to double last year’s roughly 500 million baht net profit to one billion baht this year now appears increasingly realistic.
The latest takeover in Myanmar is seen as a boon for GL especially in the medium and longer term future. At the moment, BG Microfinance Myanmar is small with a total portfolio valued at about US$1,5 million in ‘group loans’ (five borrowers per group each borrowing US$200 to purchase used motorcycles or other personal belongings). It has a total of 9,800 customers. Although small, the operations are considered quite profitable, churning out about US$20,000 profit per month.
In an official filing with the SET, GL stated that the Myanmar firm “is providing micro loans to women considered as the focal point of the family unit, and by group of five members each collectively responsible for the others. Loan maturity is fixed at 50 weeks and repayment collection is made on a weekly basis”.
Mr. Mitsuji noted that the portfolio size could have easily been increased substantially but that was not possible because of strict restrictions by the Sri Lankan authorities on capital outflows.
Now that it is in GL’s hands, BG Microfinance Myanmar will grow by leaps and bounds. With US$6.8 million new cash injection – and employing the efficient system developed by Commercial Credit — the Myanmar firm will expand from its existing three branches (two in Yangon and one in Bago, northeast of Yangon) to new branches in 12 more districts in various parts of the country.
Mr. Mitsuji reckons the portfolio size will dramatically increase to US$30-40 million next year when monthly profit is expected to shoot up tenfold to about US$200,000, made possible by effective high interest rates.
In the bigger picture, Mr. Mitsuji noted that GL’s successful “Digital Finance” business model will contribute to BG Microfinance Myanmar’s rapid expansion while the new Sri Lankan partner’s efficient “Group Finance” model will now be introduced and implemented in all other countries where GL operates, especially in Indonesia which offers enormous growth potentials.
“Our partnership with Commercial Credit will deliver perfect synergies that will help sustain rapid business expand in the region and beyond,” Mr. Mitsuji stated.