MICROCAPITAL STORY: Blue Financial Services in South Africa to Continue Microfinance Growth in Africa But Lessens Pace

Blue Financial Services, the South Africa based microfinance institution (MFI) will remain focused on expansion in Africa and will begin operations in more African countries this year, according to a press release on AllAfrica.com. In this regard, the release quotes Blue’s CEO Dave van Niekerk as saying that Blue’s plans in Africa come despite a slowdown in the ‘pace of its expansion due to the global financial crisis.’ [1]. Per information currently available, Blue’s immediate plans also include the setting up of a branch in Ghana over the next 2 months [2]. (AllAfrica.com is a news and information portal owned by AllAfrica Global Media, a multi-media content service provider, systems technology developer and distributor of African news and information worldwide.)

According to a July 2009 report by MicroCapital, Blue has a seven-year plan to enter 25 African countries [2]. It is understood that Blue determines its target countries by reference to guidance from the World Bank [8] and the International Finance Corporation (IFC) [9], both of which have been active in Africa for some time [2]. The IFC is also one of Blue’s shareholders and currently has a 5 percent stake in the MFI [2]. Currently, Blue operates in 14 countries, namely, Botswana, Cameroon, Kenya, Lesotho, Malawi, Namibia, Nigeria, Rwanda, South Africa, Swaziland, Tanzania, Uganda, Zambia and Mauritius [3]. Mauritius also serves as a treasury for its African operations and provides certain tax benefits [1]. For its lending operations in Africa, Blue was also recently granted a loan portfolio guarantee of up to USD 10 million in July 2009 by the United States Agency for International Development [2], the United States government agency providing US economic and humanitarian assistance. The loan guarantee which is valid for the next 10 years would cover 50 percent of any loss experienced by Blue on small, medium and micro enterprise loans within the USAID-backed loan portfolio [5].

Commenting on Blue’s expansion plans, Mr. Niekerk also dwelt briefly on the reasons for Blue’s current slower expansion. Citing lesser availability and higher cost of finance coupled with the devaluation of many African currencies as some of the reasons, Mr. Niekerk was also quoted as saying that Blue ‘raised most of its financing offshore and much of it was developmental, which did not necessarily make it any cheaper’ [1]. Mr. Niekerk’s statements follow a related May 2009 release on the South African business and finance portal Fin24.com where it was reported that Blue would try to improve its cost to income ratio by implementing ‘extensive cost cutting measures’ [4]. The May 2009 article also quoted the organization as saying ‘The [Blue] group will exercise prudence in its expansion plans given the current economic climate’ [4].

Blue was also in the news recently for the high interest rates charged by its Malawian branches [6], with the Malawian Government accusing Blue Financial Services in December 2008 of charging ‘exorbitant’ interest rates [6]. Per information available, Blue Financial Services offers credit at approximately four percent interest per month, or 48 percent per annum. According to a June 2009 feature on FinWeek, the weekly business magazine released by Fin24.com, in the past financial year, Blue Financial Services earned R 531 million (USD 67.6 million) in interest on its advances of about R 1100 million (USD 140 million) to microlenders in the 14 African countries it operates in [7]. This translates to a net interest margin of more than 35 percent for Blue which is reportedly 10 times that of the standard 3.5 percent margin of South African banks. The South African Reserve Bank Governor, Mr. Tito Mboweni is also reported to have ‘indicated his dissatisfaction at the bank’s large margin’ [7].

Blue Financial Services was founded in 2001. Products offered by Blue include small business loans, salary advances, home improvement loans, home loans and insurance. Blue is registered with the Financial Services Board (FSB) of South Africa, and the central bank in each of its operating countries. According to preliminary reviewed results for the year ended 28 February 2009, Blue’s loan book increased by 200 percent from R 482 million (approximately USD 61 million) to R 1.45 billion (approximately USD 184 million). Its operating income increased by 161 percent from R 282 million (approximately USD 36 million) to R 736.3 million (approximately USD 93 million). Blue reported earnings of R 118.9 million (approximately USD 15 million), as of February 2009. As of 2008, its return on assets was 7.97 percent, and its return on equity was 14.81 percent with the total debt-equity ratio at 0.0365. As of February 2009, the MFI had 300 branches and about 3,199 employees. Blue does not currently supply data to the MIX Market portal, the microfinance information clearinghouse.

By Bharathi Ram, Research Assistant

Bibliography:

[1] AllAfrica, ‘Blue Focus Still on Growth in Africa’, by Edward West, July 24 2009, http://allafrica.com/stories/200907270092.html

[2] Microcapital Story, South Africa’s Blue Financial Services Obtains USAID $10 Million Loan Portfolio Guarantee And Expands Microfinance Services In Africa, by Chinq Yee Chong, https://www.microcapital.org/microcapitalorg-story-south-africas-blue-financial-services-obtains-usaid-10-million-loan-portfolio-guarantee-and-expands-microfinance-services-in-africa/

[3] Blue Financial Services: http://www.blue.co.za/Home/About

[4] Fin24 Online, Blue to Pause Expansion, May 22, 2009, http://docs.google.com/gview?a=v&q=cache:nyC59JJVJq4J:www.blue.co.za/pdf/Bluetopause%2520expansion.pdf+mauritius&hl=en&gl=us

[5] Microcapital Story, Malawian Microfinance Institutions Accused of Profiteering, by Lori Curtis, https://www.microcapital.org/microcapital-story-malawian-microfinance-institutions-accused-of-profiteering-blue-financial-services-and-izwe-lose-government-backing/

[7] FinWeek, Blue Monday Ahead, by Vic De Klerk, http://www.blue.co.za/pdf/Finweek4June2009.pdf.

Also available at the FinWeek http://www.fin24.com/articles/default/display_article.aspx?Channel=Finweek_English&ArticleId=1518-1445-1928_2524372&IsColumnistStory=False (with subscription)

[8] World Bank: www.worldbank.org/

[9] International Finance Corporation: www.ifc.org/