Verdant Capital Inclusive Financial Institutions Survey for FY2022
Verdant Capital’s Inclusive Financial Institutions (“IFIs”) Survey for FY2022 captures the effect of key macroeconomic conditions, including increased interest rates, currency volatility and inflation, and responses by IFIs. The survey also looks at how IFIs have responded to the ‘new normal’ brought about by the Covid-19 pandemic. This report summarises the survey’s key takeaways.
83% of respondents indicated that they felt the impact of increased USD and domestic currency interest rates in 2022. 30% of respondents have restructured or renegotiated any of their borrowings with lenders. 17% of respondents reported that they had challenges repatriating foreign currency debt service payments. In terms of new funding: 66% of IFI reported local funding as the source of funding that has grown fastest vs only 14% who said international funding. 33% of respondents said high hedging costs had made it difficult to obtain international funding vs 17% reported turning down international funding because of the costs.
80% of respondents had resorted to loan book restructuring and offering facility moratoriums as a response to the asset quality degradation effects of the Covid-19 pandemic. Views on the costs and benefits of these moratoriums are very mixed: 45% of these indicated moratoriums had been positive vs 34% who said the opposite.
Inflation presented another challenge with 67% of respondents reporting higher direct operating costs. A further 27% reported declining credit quality because MSMEs struggled to pass on increased costs.
87% of respondents make use of technology in their product offering, 76% of which cited an improvement in service delivery and reach since the adoption of technological solutions. 70% increased in the number of product channels / routes-to-market since the apex of the pandemic. This is also consistent with Verdant Capital’s experience that IFIs are gravitating towards greater use of technology in their product life cycle.
Consolidation also ranks high on the strategic goals of IFIs for 2023 with 53% of respondents indicating an interest in acquiring another FI or Fintech if a suitable opportunity becomes available. In comparison only 42% made a similar statement in our survey two years ago. However, only 33% of respondents said they would consider selling their IFI (vs 8% two years ago).
67% of respondents are also gearing to expand operations to new markets/countries in 2023, implying organic growth is favoured (marginally) over acquisitions. The survey covered recent and immediate challenges facing the IFI sector. Encouraging, appetite for expansion through technology, product channels, cross-border expansion and M&A appear to be unabated. 63% of respondents expect to raise equity or equity-like capital in 2023. Such statements are a testament to the opportunity set available to certain new funds such as Verdant Capital Hybrid Fund.
Source: Verdant Capital Limited