Revolutionizing the Sri Lankan microfinance industry, LOLC Micro Credit Ltd, (LOMC) secured the largest syndicated loan of USD 55.5 Mn for the first time in Sri Lanka. This long term syndicated loan was facilitated by a reputed consortium of Development Financial Institutions (DFIs) from around the world.
LOMC, the microfinance arm of LOLC Group is the only leasing company that is exclusively dedicated for micro credit in the country.
Microfinance is not an uncharted territory for LOLC. With the initiation of the RERED project in 2003, LOLC has been relentlessly involved in microfinance providing ‘bespoke’ products to grass root level entrepreneurs. In 2009, LOLC carved out its micro portfolio to create a standalone microfinance institute together with FMO as an international stakeholder who has a 20% stake in LOMC.
FMO (Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V.), the AAA rated (S&P) Dutch Development Bank, was the lead arranger to this transaction. The other renowned participants include OFID (OPEC Fund for International Development), BIO (Belgian Investment Company for Developing Countries N.V.), PROPARCO (Société de Promotion et de Participation pour la Coopération Economique S. A. – the French Promotions Company for Economic Cooperation) and Cordiant Capital Inc. (a Canadian DFI engaged in investing in emerging markets). Cordiant made their maiden investment in Sri Lanka by participating in this syndicate loan. Most of these DFIs have a long standing relationship with LOLC. The Group has one of, if not the largest, range of external funding partners in the country, who work closely with the group in many endeavors. They consider LOLC Group not only as their preferred conduit but also as a catalyst to achieve their development and commercial goals, may it be in SME development, micro enrichment, North and East resurgence or renewable energy. Their valued contribution beyond funding has enabled the group companies to attain operational excellence, fine-tuned processes, environmental standards, early compliance, good governance and state-of-the-art IT systems.
As a case in point, FMO, plays a vital role in LOLC’s strategic thinking and has introduced many international standards over the last two and a half decades. The introduction of environmental impact assessment in credit appraisals, the mandatory emission testing for three wheelers, recycling waste water to name a few. The confidence FMO has on the group is further reflected by the fact that they are not only the equity partner of LOMC, but also an equity partner in group’s overseas investment – PRASAC – the largest micro finance institution in Cambodia and presently exploring similar opportunities in the region.
LOMC on the other hand, is one of the most preferred entities by these DFIs for many reasons. It is the largest micro financier in North and East, the largest agriculture equipment provider in the country, made a reputation for empowering women entrepreneurs, renowned for its distinctive business model and recruitment policy of fostering indigenous school leavers. Its unique Group loan model is another attractive feature. Designed exclusively for women with rapid step up loan scheme, 95% of the borrowers graduate to individual level, to become an SME entrepreneur in less than three years. The International funders are fascinated by the positive contribution made by this product and the industry best NPL ratio maintained in these group loans, reflect the commitment and ability of working women in Sri Lanka. Thus, LOMC has become the most sought-after microfinance institution in Sri Lanka to the extent that its portfolio is 100% funded by foreign funding lines.
As a result, LOMC can comfortably withstand the rapid growth momentum required by the microfinance industry in Sri Lanka. Today, LOMC stands out not only as the largest private sector provider of microfinance in the country with an outreach of 150,000 active borrowers, $ 110 Mn loan book and $ 6Mn – pre tax profit in the FY 2011/12, but also as a model microfinance house with high compliance and governance. LOMC’s unique business model is also due to the fact that it is empowered with a low cost channel network, a strategic partnership with Sri Lanka Post, resulting more than 137 branches well positioned across the island.
This syndicate loan is given in USD and the company as a policy secures all its foreign currency exposures 100% through a back to back hedging mechanism which is also a mandated by the Central Bank of Sri Lanka. The signing ceremony between LOMC and FMO together with the participating lenders took place on the 12th of November 2012, at an official signing ceremony held at the FMO headquarters in Amsterdam, Netherland. Ishara Nanayakkara, Deputy Chairman of the LOLC Group represented LOMC while Ahdi Al-Hunaif (Investment Officer, OFID), Betrand Milliot (CIO, Cordiant), Carole Mamman (Manager Financial Sector, BIO), Claude Périou (CEO, Proparco), Nico Pijl, (Chief Risk & Finance Officer, FMO), Lucas Lustermans (Legal Counsel, FMO), Matthijs Egelie (Investment Officer, FMO), Bas Rekvelt (Senior Syndications Officer, FMO), Tony Bakels (Manager Financial Institutions Asia, FMO), Amelie July (Head of Banking, Proparco) and Arno de Vette (Senior Officer Equity, FMO) were also present.
The funds raised from this syndicated senior debt facility will be channeled towards the development of the micro population of Sri Lanka, which according to the GTZ study (2008) represents 50% of untapped households in the country.
LOMC is poised to serve the micro clientele in the country to alleviate poverty and uplift the living standards of a community that once considered as “unbankable” by most of the formal lending channels. This is a realistic dream for the LOLC Group, considering the revolution it made three decades ago in pioneering leasing and factoring to the SME sector, the most important segment to the national economy.
Seated from left to right: Ahdi Al-Hunaif (Investment Officer, OFID), Betrand Milliot (CIO, Cordiant), Ishara Nannayakara (Deputy Chairman, LOLC Group), Carole Mamman (Manager Financial Sector, BIO), Claude Périou (CEO, Proparco) and Nico Pijl, (Chief Risk & Finance Officer, FMO). Standing from left to right Lucas Lustermans (Legal Counsel, FMO), Matthijs Egelie (Investment Officer, FMO), Bas Rekvelt (Senior Syndications Officer, FMO), Tony Bakels (Manager Financial Institutions Asia, FMO), Amelie July (Head of Banking, Proparco) and Arno de Vette (Senior Officer Equity, FMO)