Thu | Jul 29, 2021

ISP Finance joins microfin M&A hunt

Published:Friday | June 18, 2021 | 1:18 AMKarena Bennett - Business Reporter

Small lender ISP Finance Services is on the hunt for businesses that are complementary to its microfinance operation in an aggressive push to grow the company’s loan portfolio. Since its listing on the Jamaica Stock Exchange five years ago, ISP...

Small lender ISP Finance Services is on the hunt for businesses that are complementary to its microfinance operation in an aggressive push to grow the company’s loan portfolio.

Since its listing on the Jamaica Stock Exchange five years ago, ISP has relied solely on organic means – mainly product diversification – to grow its loan portfolio year over year. But it’s seeing new opportunities in the market among microfins not sturdy enough to withstand the coming central bank oversight without help, and is positioning for merger and acquisition, or M&A, deals from among the prospects.

Already, ISP has secured the services of an unnamed investment bank to help structure the deals.

The microfinance finance industry is said to be ripe with opportunities for M&A, several of which are faced with skyrocketing loan losses resulting from pandemic-induced business fallout. That plus heavy costs to tighten up their governance and reporting structures to prepare for Bank of Jamaica’s oversight of the industry under the Microcredit Act, beginning August 2022, have pushed some operators even closer to the edge.

The microlenders also fear the emergence of competition from the formal banking sector, which is already aggressively carving out market share in the SME or small business segment.

Entities close to avoid regulatory umbrella

There are around 200 microfin outfits in operation, many of which have existed below the radar. The two associations representing microfins say some of the operators have chosen to lock down to avoid the regulatory umbrella, but several are actively putting out feelers for partners.

ISP Finance, meanwhile, is the latest firm to out itself as a willing buyer. Others such as Access Financial and Dolla Financial have already indicated that they are looking for attractive growth prospects.

“ISP will also seek opportunities to grow its loan portfolio either through acquisitions or mergers. This would include buying existing loan portfolios from other financial institutions. The company remains open for dialogue,” it said in its newly released annual report.

ISP itself operates a loan book valued at $676 million at the end of March, reflecting growth of nearly 10 per cent year-on-year, over the course of the pandemic.

The company plans to pursue both an organic and inorganic growth strategy this year. It plans to roll out new products, as noted by CEO and co-founder Dennis Smith, having invested in digital services.

ISP Finance loans are primarily tailored towards household expenditure, education and health. It’s a midsize company within the microfin space, which is dominated by companies such as JN Small Business Loans, Access Financial Services and Lasco Financial Services. Access, for example, manages a loan portfolio of $4 billion. It and Lasco Financial have grown partially through acquisition over the years.

ISP Finance currently holds total assets of $775 million. Last financial year ending December 2020, the company made a profit of $65 million. Its earnings for the March quarter amounted to $12.8 million, better than the $10.5 million recorded in the period ending March 2020.

karena.bennett@gleanerjm.com