How can a business double its size in six years yet see its profits shrink to less than a quarter of what they were in 2018? Access Financial Services Limited presents a complex case in this regard. As the largest microcredit firm listed on the Jamaica Stock Exchange, Access Financial boasts a significant increase in net loans, reaching over $5.39 billion. Despite this growth, the company’s profits are a shadow of their former peak, highlighting the pressing questions investors should consider.
A Brief Overview of Access Financial
Founded by Marcus James, Access Financial has been a key player in Jamaica’s microcredit sector since 2000. The company initially gained prominence by listing on the Junior Market of the Jamaica Stock Exchange (JSE) in 2009, followed by listings on the JSE Bond Market in 2013 and receiving a microcredit licence from the Bank of Jamaica in 2022.
At its peak in March 2018, Access Financial was a high-flyer in the microcredit industry. With $2.93 billion in net loans and a robust interest income of $1.46 billion, the company reported a net profit of $716.03 million. The stock price soared to $56, a remarkable increase from its listing price of $18.34.
The Current Financial Landscape
Fast forward to March 2024, and the picture is notably different. Access Financial’s interest income has risen to $2.19 billion from a net loan book of $5.39 billion. Despite the larger loan book, overall operating income stands at $1.97 billion, with a profit before tax (PBT) of $595.25 million and a net profit of $391.77 million. The stock price is currently $21.21, reflecting a significant drop from its 2018 peak.
Factors Contributing to the Shift
- Increased Competition and Regulation: The microcredit market has expanded and become more competitive. The introduction of the Microcredit Act has regulated the sector, increasing transparency but also intensifying competition. This regulatory environment has leveled the playing field, introducing new players and products, which has pressured Access Financial to adapt.
- Competitive Lending Rates: Commercial banks and other lenders have leveraged data analytics to offer competitive rates and faster services. The lower cost of financing and swift loan processing by banks pose challenges for microcredit firms, which often have to adjust their spreads and interest rates to stay competitive.
- Shifting Customer Dynamics: Microcredit firms often face challenges with customer quality and loan tenure. High-quality borrowers typically prefer banks with attractive rates, leaving microcredit firms with customers who may demand lower rates and face economic uncertainties that can affect loan repayments. Recent financial strain, including higher credit impairment provisions, has further strained Access’s profitability.
- Operational Costs and Impairments: Rising staff costs due to inflation and increased credit impairment provisions have impacted profitability. Despite efforts to streamline operations with new technology, such as the AFS MyAccess Jamaica mobile app and CRM tools, these costs remain a significant burden.
Strategic Decisions and Future Outlook
Access Financial has made strategic moves to maintain its market position. The acquisition of Damark Limited in 2016 expanded its reach to public sector employees, but recent efforts have focused on optimizing core operations rather than pursuing new acquisitions. The company has also faced challenges with its auto equity lender, Embassy Loans Inc., which has struggled since the COVID-19 pandemic.
As Access Financial navigates these challenges, questions arise about its future direction. Should it pivot to higher-end markets or diversify further into business loans? The recent write-offs and past-due loans highlight the need for a reassessment of risk and customer quality management.
With Chairman Marcus James currently on a one-year leave of absence, and interim leadership under Michael Shaw, there is uncertainty surrounding the company’s strategic direction. James’s legal battles and the broader economic context, including recent rate cuts by the Bank of Jamaica, add layers of complexity to Access Financial’s operational landscape.
Conclusion
Access Financial Services Limited exemplifies the dynamic and challenging nature of the microcredit industry. While the company has expanded significantly, its struggle to translate this growth into profitability reflects broader industry trends and internal challenges. Investors should carefully evaluate these factors, alongside Access Financial’s strategic responses and market positioning, to gauge the company’s future prospects.
