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Lasco Financial doubling down on microlending amid challenges in remittance market

Lasco Financial Services Limited, LasFin, will put more muscle behind growing its microfinance arm to alleviate the drag on earnings from remittances, a multibillion-dollar market in which competition is on the rise.

The company’s money transfer operation has also taken a hit from the reduction in commission paid by large remittance partner MoneyGram International, Managing Director Jacinth Hall-Tracey said, resulting in thinner margins for the segment that saw unprecedented growth in the heights of the COVID-19 pandemic.

“The remittance segment faced several headwinds from new entrants and outright reduction in the commission paid by our major principal, MoneyGram. Just by communicating to us by a letter, they reduced our fees [commission] by 17 per cent,” Hall-Tracey said.

LasFin grew its number of remittance transactions, notwithstanding, but the volumes weren’t enough compensate for the loss in commission.

Overall, the company’s earnings fell by 30 per cent to $214 million for the year ended March 2023. That’s down from $306 million a year earlier. Revenue also slid nine per cent to $2.27 billion.

Still, Hall-Tracey reported that LasFin managed to increase remittance inflows by 4.7 per cent, performing well ahead of the industry, which declined by 1.3 per cent.

“So we are still expanding the business despite the challenges,” she said at the company’s annual general meeting on Wednesday.

“We increased remittance transactions also by 3.8 per cent, and we increased cambio purchases by 2 per cent for the 2022-23 financial year,” she added.

The challenges faced by LasFin comes amid ongoing softness in the money transfer market. Remittances inflows to Jamaica dipped marginally in 2022. from US$3.5 billion to US$3.44 billion. That trajectory continued into this year, where the flows recorded between January and July were off by one point, sliding from US$1.96 billion to US$1.95 billion. The current flows are valued at about $304 billion in local currency.

Remittance services brings in most of the dough at Lasco Financial, at 44 per cent of total revenue; foreign currency trading accounts for 35 per cent; and microlending through subsidiary Lasco Microfinance contributes 15 per cent.

The microfin operation grew its loan book from $998 million to $1.2 billion, reflecting new business, but the bottom line showed losses of $27 million, dragging down the overall group results.

Still, LasFin has long made a determination that the microfinance operation offers it a way to keep group earnings intact. That decision was merely reaffirmed this week.

Hall-Tracey told the Financial Gleaner that it had been Lasco Financial’s plan from six years ago when it acquired 100 per cent shares in Scotia Jamaica Microfinance Company Limited, trading as CrediScotia, through a share-purchase agreement with Scotia Group Jamaica in 2017.

At the time, the acquisition had served to triple LasFin’s loan business from $600 million to $1.85 billion, and pumped up group revenue by 10 per cent.

But now Hall-Tracey wants to move the needle even further. She is now hunting for 40 per cent.

“We always knew that at some point the remittance business would become a transactional business, and so it was always our plan to have the microfinance business be the dominant revenue contributor. We were on track for a little bit, but then COVID came …,” she said.

To meet the new objective, Lasco Microfinance’s business model has been revised to focus more on the low-risk small and medium-sized business segment, as opposed to prior years when it targeted the microbusiness population, such as school vendors and taxi operators, who have little access to bank credit.

“We started that business wanting to assist the ordinary persons who are buying to sell at school gate, operating a small bar in the community, etc, but we quickly learnt during the pandemic that the segment carries a high risk, which resulted in high delinquencies on our books,” Hall-Tracey said.

LasFin has also build out a suite of digital omni-channel services to connect all three business segments. Approved loan clients can receive funds through the Lasco Gold Visa debit card, and remittance recipients can also have cash sent directly to the card. Through the card, its holders can pay for goods both in-store and online and do cash withdrawals.

New features are under development for the Lasco Gold Visa debit card through the Bank of Jamaica’s fintech sandbox, Hall-Tracey said, but she did not disclose the details. The central bank’s sandbox helps to drive tech innovations around financial products.

“We are making investment in technology for the future, and we have also been doing a lot of campaigning to have more of our customers collecting their remittances through our Visa prepaid card,” said the LasFin MD.

“But it really comes down to culture and having a good cashless ecosystem,” she said.

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