Softlogic Finance sets greater heights for success

Softlogic Finance Deputy Chairman Harris Premaratne

By Charumini de Silva

Q: What’s your game plan to align the current business model into a more profitable one?

A: This finance company was acquired and named Softlogic Finance by the Softlogic group in 2010 with a Rs. 2.8 billion asset base, 100 employees and with eight branches. Today Softlogic Finance has 510 employees and an asset base of Rs. 20 billion and we have 25 branches. The company grew significantly during the last five years. By the end of the financial year we will have about 35 branches.

There are plenty of businesses a finance company can do apart from leasing and hire purchasing. Well…there was a conscious decision taken by the company to realign the business lines, where the company feels they are good at. Typically, finance companies are labelled as companies who give money to buy vehicles through leasing and hire purchase facilities. You cannot blame it also, as it is evident. In Softlogic Finance also, they have been doing leasing and hire purchasing.

The Leasing and Hire Purchase industry went through very turbulent times which affected all finance companies in the industry including us and this was the main reason for the company changing the product focus from leasing and hire purchase to working capital loans.

We have started fine tuning the company’s operational performance in order to achieve better results in the short and medium term. With the shift of company focus from leasing and hire purchase to working capital loans it became imperative to strengthen the credit appraisal and verifications process and as a result we stretched the credit division and brought in also a sub division of credit risk and this we believe will definitely improve the quality of lending in the long run.

Leasing and hire purchase business has become much crowded; banks have now come in aggressively and are offering very competitive rates which Finance companies cannot compete with. As such we will also do leasing but only after careful evaluation and depending on the creditworthiness of the customer we will also offer a competitive rate but out our portfolio which was around 46% in the start of the financial year 2014/15 is now about 25%.

It’s not that we are going to abandon, but we will follow a very good model so that people who are obtaining hire purchases have to put some money upfront.

There is one product which is growing steadily and that is the Working capital loan where the portfolio is about Rs. 5 billion and this is a business that we are now carrying forward. Sooner or later other companies will also look at this and follow. But it is not easy, you need the expertise to study the customer and primarily it is the decision making process. So, we are now lending to business houses, whereas with leases it is mostly individuals.

Virtually compared to a lease where you have a security, in a loan it is the business person’s guarantee. But the biggest security here in SME loan is the ability to pay, which is the strength we are cultivating. These SME customers won’t get those prime rates when they go to a bank in any case. Banks takes some time to process and disburse it. Our advantage is the ability of our managers to process the application, decision making and disbursement of loan is fast. Within three to four days, the customer can obtain their SME loans. 

Group personal loan is another segment, which we are focusing on where we provide loans ranging from Rs. 50,000 to Rs. 200,000 on the undertaking that the company will recover the instalment from the employee and remit it to us. At present we have group personal loans customer base of about 40,000.

We have also restructured the gold loan business and started converting the stand along gold centres to fully fledged branches and by the end of this financial year thus will be completed.

Plans are also underway to utilise the large ATM network of a partner bank to introduce the savings product to our customers.

It will take some time to reap all these benefits, but we are increasing the volumes of these two business models.

Q: How did the low interest rate regime fare and what are the company’s future expectations?

A: The low interest rate regime really helped the company. The funds that we have mobilised in the past were at high rates so; re-pricing is taking place at present. Some of the funding which were at 14% to 15% we are now getting at 9%. Because of that we are able to reduce the lending rates and we will earn on the volumes. Earlier the firm had much bigger interest rate margins, but I think it will ultimately come down to around 6% to 7%. 

We will earn more than what we have been earning with bigger volumes because a lot of customers are coming in for lower interest rates. We plan to earn on volumes, less on margins. That’s where the branches will come in handy in collecting deposits and lending; otherwise the branch expansion will entail a huge cost, but we are managing that effectively. We want each branch to pull together a good deposit base.

Q: What can you say about the shareholder funds in balance sheet?

A: We had a rights issue recently and it was well received. After providing for non-performing loans (NPLs), a good portion of profits will be in our reserves. So, capital funds will increase and at the same time we will pay higher dividends as and when the company progresses. Our shareholder fund is about Rs. 2 billion at present. We have to increase it to meet the business expansion plans.

Q: Softlogic Finance is on a major distribution drive, hence what are your branch expansion plans?

A: There were 17 branches when I joined and top of that there were another 15 gold centres and those are very tiny units. They did not reflect well for the company’s image and we are now converting them to bigger branches. By the end of this year all of these will be converted into fully-fledged branches and on top of that we will open new branches. A target is given that every month, we open up two branches. By next year September we are aiming to have 50 branches. The key reason why we are expanding the network is to harness business loans in those localities. 

Additional branches that are coming up are not a burden on the company, we are not recruiting that kind of manpower, but we will deploy them from internal transfers. We invest around Rs. 1.5 million on a small branch and Rs. 3.5 million on a bigger branch.

Q: What new plans are lined up for the year?

A: We will be joining the ATM network somewhere in December. Some of them will be our own ATMs and we will link to the network. This will be launched when we are aggressively promoting our savings products. There again what people do not understand is the synergy we have with the Group. This is the largest diversified company in the country and if we align effectively the potential we have is enormous. 

We will be venturing into financing imports and exports. The company will commence it early next year. In this business segment we are targeting the medium size businesses. Thereafter, we will gradually get into foreign currency purchases and money exchange business. We need to first train people here. We would have it at important towns and even at locations where Softlogic has bigger businesses like Odel. The biggest advantage here for us is the synergy that we are trying to create through the Group, and it is unimaginable for a competitor.

Q: It was said that the company expects to complete the implementation of the state-of-the-art IT solution. What’s the latest progress of it?

A: We are rolling out a new IT system and business line by business line we are finishing it. That is for the front end. The back end will come where the entire group is installed with Oracle. That will look after the IT requirement of the company for another five to six years. The front office IT system investment is about Rs. 25 million. Central IT team in the head office will look after the roll out of the back end system with the company team.

Q: What are your growth predictions for this financial year 2015/16?

A: We are looking at 30% increase in the profits over last year. The volumes also might increase by 20% to 25% y-o-y. Business volumes of the company have increased by 20% compared to last year, and it will further increase with business expansions. One year ago we were seizing about 100 vehicles a month, but last few months we seized only 35 vehicles per month. So, it is a drastic drop and gradually it will come down. 

At the moment there is a big team working on these recovery efforts. There was a 10-fold increase in the profitability of the company during the first quarter, which is significant. But that doesn’t mean that you will have a 10 fold increase by the year end as it would smoothen out through the year end.

Q: What is your perception about the financial consolidation?

A: It is necessary, but it has to be done in a manner which does not hurt the individual companies. You need big players, but there has to be a need and a desire for such people to get together. Regulator could encourage it, but players must do it by themselves. 

Q: How do you think the industry would perform this year?

A: I think the entire industry would definitely perform better compared to last year. There was so much of disturbance last year, especially with the financial consolidation. This year they will try to concentrate on the business and try to grow the businesses. 

Q: Could you elaborate on the ‘Clean Zone’ community initiative and the response received?

A: Softlogic Finance ‘Clean Zone’ community initiative which is intended to enhance the cleanliness of the environment – by supporting proper disposal of garbage. We facilitate enhanced cleanliness in the area designated as the Softlogic Finance Clean Zone, via cleaning done at shorter intervals, through means of an agreement with the relevant Municipal authority.

A 1 km roadside extent in total (with 500 m to either side of branch) was declared part of the ‘Softlogic Finance Clean Zone’, which via the integration of the entire network of Softlogic Finance branch locations is eventually intended to encompass a 100 km roadside extent in total. In addition to other awareness efforts conducted by staff, prominent messages were displayed within the branches promoting proper garbage disposal, segregation and recycling.

To further promote the concept, separate bins dedicated for the disposal of plastic, bottles and non-recyclable waste were placed in front of the respective branches and busy locations in the cities.

Pix by Bhanuka Kirinde