Financial Sector in Ghana: Jislah Financial Services

Interview with Emmanuel T. Obeng, Chief Executive of Jislah Financial Services

As a Ghanaian, what is your view on how to do business in Ghana? You deal in different sectors: properties, IT and financial services. Why are you dealing in so many areas? Is it because when you start a business in Ghana, the services aren’t there and so you have to bring them yourself?

Professionally, I am qualified in ICT services; I have my 1st and 2nd degree in Management Information Systems. I have worked for several years in IT, with well-renowned organisations such as the British company International Computers Limited. I have had working experience in Nigeria; we were pioneers in the computer business in Ghana. I came back to Ghana and worked for Reiss & Co, a Dutch company for about 10 years. With dint of hard work, I rose through the ranks to the highest level- General Manager. Then I felt the way to progress was to start something on my own.

In January 1993, I became the first Managing Director for Digitronix Systems Limited, an ICT company. In the IT sector we won every award possible. So as you grow in one industry you then have to start to look at what will be your next long term move. You want to create prosperity for people and to create job opportunities for the people. Creating jobs is not easy in Africa and the government alone can’t do it. Therefore once we become prosperous, we have to look at how we can diversify for the good of the people and the company.

To grow/expand we had to look in terms of vertical and horizontal diversifications. For horizontal diversification we concentrated on IT Services and Education. We did it through a franchise with one of the biggest Indian IT Education companies, called Aptech Computer Education. For vertical diversification we considered Insurance and Financial sectors. In 2002 Digitronix Systems therefore bought 90% stake of KBA Financial Services Ltd, a Bank of Ghana licensed finance company. In 2005 the name changed from KBA to Jislah Financial Services Limited. Therefore we bought into the company in 2002 and changed the name in 2005, and started to operate from 2006, and as we know it has been an upward trend.

When an economy grows, real estate becomes interesting because you are going to get a lot of investors coming in and even the locals are likely to have increasing wealth and they will want to show off that wealth by staying in good places. For that reason we decided to enter the real estate sector. It is one of the ways that we can give value to people’s investments.

The IT company, Digitronix is the parent company; the others just fell into place.

So your main skill is finding what will be the next successful business, before others get there first?

Yes.

And you keep changing and increasing your portfolio to become a holding company for different activities?

Yes that is basically the idea. However we want to be careful about growth. You don’t want to grow to kill others. That would be like killing the chicken that laid the golden egg. I am a visionary and I get people who will run with my vision. Once you have a good team of people with a vision, you need to start thinking about what you can do to bring more value. I believe that we have a mandate. I don’t believe that God created us to just live 70 years or more and then just die and go. No! We have a mandate. God gave us gifts and we must use the gifts to His glory. So that when we die and meet our Maker, He will commend us and say “well done good and faithful servant”.

So what is your mandate?

My mandate is to create jobs for our people. Any opportunity I get to talk or give lectures, I talk about investment. I believe that Africans, we need a change. We need to know and be confident that we can do it on our own. We lean too much on aid and aid will not get us anywhere. There is so much wealth around us that we can make use of; we can take advantage of the developed world for our own good.

Don’t you think that this is happening now? For the last 10 years we have been saying that the future of the world is Africa. I think that what you are saying now is already happening here in Africa, Africa is taking over the future, or do you think that not quite yet?

Globalisation is doing a lot of good to everyone in the world. A lot of Africans have the opportunity to gain good skills and can compete favourably with other workers from the developed world, either working in the same organisations, or in education and schooling or even working overseas. Anyone with that kind of mind-set can be a good leader. We can raise our own good leaders to lead the nations. We are used to having family dynasties and dictatorship. This is changing. If you look at Ghana, I believe Ghana is doing well now. We are seeing real progress and people are saying good things about Ghana because we took the right path nearly 20 years ago in terms of governance. No governor should run for more than 8 years; everybody should compete for their seat, so that they go out and tell the population what they can do for them. That is being done as a nation here and it is very good. Now you have to justify your tenure to your people. There are a lot of good people in Ghana. Don’t forget Ghanaians are also quite God-loving and believe in God. Every Ghanaian believes that they have a destiny in this life. When you start climbing the ladder you have to see how far you can go. I believe we have a responsibility to God. Africans are still very religious. So whether you are successful or not, it plays a key part in your life. It offers a lesson which is: those who do good have a responsibility to God and to the generation after them.

Today whatever you are seeing in Africa has been there for generations, we have good land and good natural resources. No wonder we were colonised! That’s why the Europeans and our ‘colonial masters’ came in. That’s life. You take advantage of the ignorance of others. I can’t blame them for that.

Now, let’s talk about Jislah itself. How do you apply your philosophy to your financial products?

Basically, Jislah’s vision is to be one of the best financial institutions. I want to be the best in this country and beyond. We want to create value for all.

We have to create value; we have to say ‘let’s create a short term bridge financing venture’. Why short term? Well, if you go to every bank and ask what is the average time period it takes for someone to get credit, it will be at least 3 months. You can’t get good credit in this country within one month from any bank.

Secondly, we have a lot of people who need education in basic finance. Unfortunately financial knowledge is low. In the schools 20 years ago, no one would teach you about finance, unless you studied a course like business administration or commerce. If you studied history or psychology you would end four years of university without knowing what profit is. So today there are a lot of people in all sorts of careers who have very little financial knowledge. That is one of the problems we face as a nation. There are very few people who save with the banks. In the developed world everyone has a bank account; here that is not the case. So we have to ask ourselves how we are going to address that. You don’t need to open a bank account with us; you can walk in today and within 3 days, when all your documents are in place, your credit is ready. That is what we mean by short term finance. We deal with good clients of the banks; however people don’t deal with banks for credit because they need SPEED. They need funds that they can’t get from the banks quickly enough so they come to Jislah. Yes we have slightly higher interest rates than the banks but our clients see the advantage.

I’m not an expert, but is it close to micro-financing?

I won’t use the word micro-financing. Micro-financing in Ghana is dealing with small loans and small traders. Jislah does that as a social service but not part of our core mandate. Our business is to give loans of high amounts. When the loan amount is low, and there are challenges in repayment by the clients, it is difficult to take them to court.

In three days how do you secure yourself? If these banks take 6 months to screen people before they decide whether to give the loan, are you taking more risks?

Let me tell you about our non-performing portfolio, less than 5% are not performing in our total loan portfolio. In this country the average is about 14%. So yes we take risks but we take reasonable risks. Because of our lean structure we can do things faster. We do most of the things that the banks do. We have a loan credit committee who we can meet 3 times a day. We don’t wait three days if we think the loan is good. If the committee decides it is good we go ahead and do it. We look at how we can secure the collateral. In this country if you have the right strategies in place with the right network you can secure all the collateral information you need in 24 – 48 hours. We have qualified staff who make sure all documentations are right so as to process the loan speedily.

What is the next step for the development of your company, do you need investors? Would you be interested if someone came and said “I really like your model, I want to develop it and want to do it everywhere”?

Our strategy as a company is to be listed on the Ghana Stock Exchange, within the next 36 months. We had a 5 year strategy plan and we achieved all of the performance indicators that we set ourselves within 3 years. We have been recognised as an efficient company in Ghana, we are in the top 100 companies in the country. We are growing and still working on the 5 year strategy. We could be listed on an alternative stock exchange, but our goal is to be on the Ghana Stock Exchange. By the close of 2015 we should be listed on the Ghana Stock Exchange.

Now, to address your question, the challenge comes from the high cost of funding, as I mentioned to you we are not a deposit or a savings company, we don’t issue credit cards or cheque books, people don’t keep accounts with us. If someone keeps an account with you then you can get some cheap or free money, because they will leave some dollars in their account that you can lend out. We don’t have that facility; we have to go back to the market. We have to deal with asset companies, corporations, and even today there are individuals who invest in us. Whoever comes to you, wants government interests plus some margin. Some want as much as 5% margin above BOG Treasury Bill rate, so with government interest at 23% they say I want 28% before they give you their money. It is demand and supply. If you have demand then no choice but to take that money. Therefore the cost of funding is high.

So we want investors who would want to come into partnership with us with cheaper costs of funding. Someone can say ‘look I want to invest in that company every year, give me preferred shares. Promise me a certain annual percentage returns and any time I want to walk out I can take my money and leave.’ I say ‘Thank you, come in!’ If you look at our central government it raised a 5 year bond that was fully subscribed last week. The government gave interest rate of 19%, that’s good money for any investor; to have 19% returns assured year on year for 5 years is excellent, where will you get that in the developed world? So we are saying that we go into areas that are well researched, yes we need partners, yes we need cheaper money to grow. I believe whoever comes to partner with us will be making a very wise and profitable investment decision.

You probably have already assessed this vital question for your business, you probably went to Europe and discussed with some financial institutions or potential partners that see that your model is perfectly good. What has been the reaction and what prevents them from coming?

The reaction is the reason we are talking now. This is a vehicle we can use to attract investors. It is not easy to walk into an office of a big name company and say ‘hey I’ve got a model, look at my trends for the past 5 years, which show that you will win if you join with us’. It takes a lot of organisation. I believe that you and I chatting today is an avenue creating that platform, to tell people that it is good to come to Ghana and invest in Jislah or in other companies that are performing well.

They need to know about your sector, about you and also about Ghana in a positive light. There are a lot of challenges here wouldn’t you say?

I think Ghana today is a lighthouse for the rest of Africa, and in terms of Sub-Saharan Africa, we stand out. Why is that? Because of our governance system and our revenues that have improved and will continue to improve because we found oil. Maybe in West Africa we can say that Nigeria is a bigger economy but they have problems, security wise, and every investor wants to come to a country that is safe and at peace and that is what we have here. It’s good for any investor to come in now; it’s going to be a good year and the years to come.

What about the sector, what you are doing here? How would potential partners see this sector? What is their reaction?

I can say that today in Ghana, the financial sector is the most profitable. In this sector everyone is getting no less than 50% returns, profits. We have reached average profit increases in the last 2 years of about 200%, last year it was 200% this year we think this will increase 100% in terms of shareholder value, profit, etc. It is not just Jislah. Those who are doing it right, have a model. If you follow the bank you will fail, you have to have a model. The finance houses are not banks, and they make a lot of profit. Already we have Nigerian banks taking over Ghanaian banks; a lot of African banks are jumping in. So what are the Europeans doing?!

They don’t have anymore money!!!

That’s why they need to come to Africa! The returns here are better!

No, they do have lots of money, but maybe they are scared of something. The ones that aren’t scared are those next door in Nigeria, South Africa and the next step would be the Europeans and maybe after that the Americans? The Chinese are already there.

There are about 28 banks. There are now over 120 rural and community banks, why didn’t the commercial bank set up within the rural banks catchment areas? Some years ago the major banks only wanted to operate from the major cities until rural banks like community banks were set up and they did very well! There are over 200 BOG Registered Microfinance companies. Why all this rush? Because it looks to be the most profitable sector. With this population and the competition coming I can bet you a lot will die. You need to have a solid foundation for that. I can tell you that is where Jislah is a champion and a winner. We have a strategy.

How do you see this company developed in 5 years’ time?

I can talk about what we hope to achieve in 36 months. We need to gain a level of cash that will give us a springboard. We will carry on doing what we do best and also focus in the oil business. We need to take advantage of the oil downstream businesses as there is a lot of business in that area. We want to develop that over the next 3 to 5 years. We want to build a strong department to deal with that. Two key branches will be developing very well: Tema and Takoradi. We will grow our structures well and be able to take advantage of the huge potentials in these regions. I believe in being a home grown company first. I know that some colleagues are establishing in Nigeria and some African countries but when they ask me I say ‘hey let me do it right here. In Ghana I can do it right. I’m going to stay here for some time and grow the business here because there is a lot here to take advantage of’. After that we can look beyond to other countries. We could even have branches in Europe and USA. With funds and right strategy we can do a lot both locally and abroad. We need to do it right and not rush. Our focus is to take full advantage and whatever we do, do it right.