MICROCAPITAL.ORG STORY: South Africa's Blue Financial Services Obtains USAID $10 Million Loan Portfolio Guarantee And Expands Microfinance Services In Africa

It was recently reported that Blue Financial Services (Blue) [1], an MFI headquartered in South Africa and established in 2001, received a loan portfolio guarantee of up to USD 10 million from USAID [2] for their small business lending operations. The facility will cover 50 percent of any loss experienced by Blue on small, medium and micro enterprise or SMME loans within the USAID-backed loan portfolio. The guarantee is valid for the next 10 years.

USAID is a federal government agency that receives overall foreign policy guidance from the Secretary of State. They support long-term and equitable economic growth while advancing the US foreign policy objectives. To encourage financial institutions to lend to creditworthy but underserved borrowers, USAID uses a tool called the Development Credit Authority (DCA) [3]. DCA is used to stimulate lending through the use of partial credit guarantees. These guarantees, which cover up to 50 percent of defaults on loans made by private financial institutions, use financial resources that already exist in developing countries (such as funds held in local financial institutions) to stimulate broad-based development. Since the establishment of DCA in 1999, over 200 partial credit loan and bond guarantees have been granted by USAID. In July 2008, USAID approved a co-guarantee with the African Development Bank (AfDB) [4] for Ghana. The loan portfolio guarantee with two banks, one with Barclays Bank Ghana [5] and the other with Prudential Bank Ghana [6], is a 10-year USD 48 million guarantee facility whereby the AfDB will cover 40 percent of the exposure on outstanding loans and USAID will cover 10 percent.

Blue does not currently supply data to the MIX Market [7] portal, a database which houses financial and other information on MFIs across the globe. According to preliminary reviewed results for the year ended 28 February 2009, Blue’s loan book increased by 200 percent from South African Rand 482 million (approximately USD 61 million) to Rand 1.45 billion (approximately USD 184 million). Its operating income increased by 161 percent from Rand 282 million (approximately USD 36 million) to Rand 736.3 million (approximately USD 93 million). Blue reported earnings of Rand 118.9 million (approximately USD 15 million) as at February 2009.

Blue is a pan-African micro-financier, in that it currently operates in 14 countries (apart from South Africa) on the continent. Blue is currently listed on Johannesburg’s alternative exchange AltX [8] and in Botswana. Blue’s CEO, Mr Dave Van Niekirk, has been quoted as saying that the dual listings on local exchanges are intended to ‘create a sense of awareness’. Due to the patriotic factor, people identify with a company they see on their local bourse. As a result of the listing in Botswana, Mr Van Niekirk noted that revenue has increased by 20 percent. It is understood that the MFI plans to list elsewhere on the continent.

According to a recent publication by Blue, the MFI has 300 branches and about 3,199 employees as at February 2009. Among the products offered by Blue are small business loans, salary advances, home improvement loans, home loans and insurance. Blue is registered with the Financial Services Board (FSB) [9] of South Africa, and the central bank in each of its operating countries.

The MFI is planning to open a branch in Ghana over the next 2 months. According to a recent publication by Blue, the MFI has a seven-year plan to enter 25 African countries. Mr Van Niekirk states that Blue determines its target countries by reference to guidance from the World Bank [10] and the International Finance Corporation (IFC) [11] which has been active in Africa for some time. The IFC is also one of Blue’s shareholders and currently has a 5 percent stake in the MFI. In the past year or so, Blue begun operations in Nigeria and Cameroon.

By Chinq Yee Chong, Research Assistant

Bibliography:

[1] Blue Financial Services: www.blue.co.za/

[2] United States Agency For International Development (USAID): www.usaid.gov/

[3] USAID Development Credit Authority (DCA): www.usaid.gov/our_work/…growth…/development_credit/

[4] African Development Bank (AfDB): www.afdb.org/

[5] Barclays Bank (Ghana): www.barclays.com/africa/ghana/

[6] Prudential Bank (Ghana): www.prudentialbank.com.gh/

[7] The MIX Market: www.mixmarket.org/

[8] AltX at the Johannesburg Stock Exchange: http://www.altx.co.za/

[9] Financial Services Board (South Africa): www.fsb.co.za/

[10] The World Bank: www.worldbank.org/