Johannesburg - As many South African lenders brace themselves for an economic recession, little-known microlender Mafori Finance is aiming to capture more credit-hungry customers and aggressively grow its market share.
The black-owned micro financier has set itself the target of doubling the size of its loan book by the end of next year, bucking the trend of big retail banks that have scaled down their lending activities due to spiralling bad debts.
"By the end of 2010 we are looking at doubling our active customers to 32 000 and our loan book to R210m," Pakie Mphahlele, the managing director of Mafori Finance, says.
Mphahlele says banks' retreat from the personal loans market has opened a gap for microlenders to inject more credit, but the tough capital-raising conditions could put a damper on growth prospects.
"The fact that the banks have reduced their lending to the market gives us an opportunity to grow. The only constraint will be whether the capital markets will be able to support growth in our market," he said.
Just two years old, Mafori Finance has already made two acquisitions as it sought to bulk up. Last year it purchased microlenders Dymnanco Finance and Peulwane Finance and brought the management of these firms into its fold.
"It became clear after the introduction of the National Credit Act in June 2007 that you could not survive in this industry if you were small. You need a loanbook of R200m and above," Mphahlele says.
'Microfinance industry is thriving'
The act put a lid on the exorbitant interest rates that microlenders charged in the past, which allowed them to make obscene profits. The legislation forced many microlenders to merge in order to survive as the regulators rid the industry of parasitic pricing and unscrupulous practices.
Mphahlele says local microlenders did not experience a sharp rise in bad loans, whereas large banks saw their impairment costs shoot up more than 100% due to defaulters.
"There is no exceptional jump in write-offs in our business," Mphahlele says.
However, the microfinance industry is thriving and lenders such as Abil and Capitec have reported strong growth in their earnings.
Mphahlele has been in the financial services sector for 13 years. In the early 1990s he was sent by the African National Congress to the London School of Economics with the likes of Absa's Maria Ramos, Lesetja Kganyago of the National Treasury and the Public Investment Corporation's Brian Molefe.
Mphahlele was instrumental in the 1996 establishment of the National Housing Finance Corporation, a state-owned institution that seeks to encourage banks to provide home loans to low-income earners by guaranteeing up to 40% of the loans.
Before setting up Mafori Finance in 2007, Mphahlele ran Wizzit Bank, the local unit of the Bank of Athens, which was the first institution to launch cellphone banking services in South Africa. He left Wizzit because he was not happy with the bank's strategy of focusing on transacting activities only. "I have always wanted to provide credit and Wizzit was not granting it," says Mphahlele, who owns 7% of Wizzit through a family investment vehicle, Mafori Trust.
However, in 2007, when he started Mafori Finance, he used Wizzit as a launchpad by targeting its customers who were starved of credit. Mafori Finance, which employs 75 people, now provides a range of products including personal, home improvement and educational loans to the emerging market.
Mphahlele says black economic empowerment is almost non-existent in the micro-finance industry and more has to be done to create black entrepreneurs in the sector.
"I am still looking for a black person who owns at least two branches in this industry. We are a long way from transforming."
- City Press