The interview was published in Forbes Kazakhstan in September 2024.
At the beginning of October, trading in bonds of MFO “Asian Credit Fund”, which has been at the market for more than 27 years, will be started for the first time at Kazakhstan Stock Exchange. The bond yield is expected to be 21% per annum in tenge, with coupon payments on a quarterly basis. Zhanna Zhakupova, Chairman of the ACF Board, tells us in an interview about what the Company does and why it attracts financing on the stock exchange.
Zhanna, you have been working in this Company since its foundation. Please, tell us how it all started.
– Asian Credit Fund Microfinance Company was founded in 1997 by Mercy Corps, an international non-profit organization headquartered in Portland, USA.
ACF was established as a non-profit organization with the main objective of ensuring social welfare of the citizens. As a part of its operations, MFO opened a small and micro business lending program in Kazakhstan.
I joined the Company as a loan officer immediately after graduating from KIMEP University. At that time, we lent only in Almaty, and our borrowers were mostly people who traded at the jumble market or were engaged in some small-scale production of foodstuffs, furniture. After perestroika, times were hard, many people had no jobs, and people even with higher education were forced to survive, to go into trade.
Was it a social project or was it business?
– No, it wasn’t charity, the Company had to cover the expenses and make a profit. But since the loan amounts were small (the average cheque was no more than 5,000 US Dollars), it was difficult to achieve quick self-sufficiency. It took us five or six years to pay off the investment.
As we were developing, it turned out that a non-profit organization was not the best form for developing a company, because there was no clear distribution of income, no exact final beneficiaries. Everything belongs to everyone.
This fact was difficult to explain to the creditors or a regulatory institution. At that time, the National Bank granted us a licence to carry out the lending activities, but as we were developing, we understood that we needed to raise funding.
Therefore, in 2006 we transformed the company’s form of ownership from a non-profit organization to LLP and became fully commercial with two co-founders – Mercy Corps and a public foundation. At the same time, our main mission remained the same – to improve the quality of life, well-being and sustainability of the families and micro-enterprises, primarily, in the rural areas, through fast and convenient financial services.
Showing super profits is not typical for our Company because we work with population that does not have high incomes.
In general, international understanding of microfinancing is that it is equally about achieving both the financial and social goals. That is, true MFO should not have the goal of profit by all means. In our country, this understanding is distorted.
Who are the founders of your Company today?
– Today, the main majority participant of ACF is BOPA, which is a holding company incorporated in Singapore, with both individuals and legal entities (typically, international development institutions) as the ultimate beneficiaries. BOPA’s mission is to support the microfinance organizations that are in the growth stage but are small in size.
What are the specifics of your business? What products do you offer? Who are your customers?
– We focus primarily on lending in the regions. More than 93% of our customers are the borrowers from the rural areas. At the same time, more than 58% of the loan portfolio is the loans for business in the livestock sector.
If we go to a village, we will see that every family has several sheep, cows, horses, etc. These are not large peasant farms – there are other creditors for them. We work with the families who have some kind of private farm household. There is a shortage of the financial products for this category of population. The banks don’t go deep into the regions; it’s not profitable for them. We work in the localities where the number of the residents may be two thousand and less. The average loan cheque is KZT 500 thousand and the average interest rate is 35%.
Do you assess the client’s solvency as usual or are there any differences?
– Of course, our credit scoring is not completely online, as it is done nowadays in most banks and MFO. We see the client’s credit history, assets, official income, etc. But our clients often have the assets that are not visible online. For example, the number of livestock or the volume of milk a cow produces. That’s why the loan officers go on site, get acquainted with the family, assess certain assets, and only then we make a decision on granting a loan.
We only lend for the business purposes, meaning we don’t lend for the holidays or buying iPhones.
What is your financial performance in recent years?
— For the last three years, our assets have been growing at 40% average annual rate and at the end of 2023 were 33.2 bln. tenge.
If we take absolutely all MFO companies, we rank the 9th in terms of the assets. If we do not take into account the companies that lend to the population only for purchase of the cars, we are in the 5th place. We are also among the top 9 in terms of loan portfolio size. We are in the second place after KMF in terms of the number of the clients from the rural area. The net profit indicator has been steadily growing and at the end of 2023 it was 841 mln. tenge.
The assets since the beginning of 2024 increased by 27% to 41,671 mln. tenge, the loan portfolio volume – by 32% (up to 34 bln. tenge).
Today, we have 64 offices, 17 branches, 500 people work, of them 70 people work in Almaty, other 430 employees – beyond Almaty in different regions of the country.
What are the parameters of the bonds you plan to issue?
— Total volume of the bond program is 6 bln. tenge, the first issue within the program is 2 bln. tenge, maturity of the bonds is 2 years, coupon – 21% per annum, coupon payment – quarterly, stock exchange – KASE, financial consultant and underwriter – BCC Invest investment company.
Why are you raising funding? What will the funds raised be used for?
– The purpose of the issue is to replenish working capital. We plan to grow further, build up our customer base and increase the volume of our loan portfolio.
Before we went the stock exchange, we always had the international lenders. To date, these are 14 foundations from different countries of Europe and the United States. These are mainly specialized international organizations that invest in the social assets. The foundations lend to us in tenge for a period of two to three years, i.e. we have no currency risk. We also have a subordinated debt for five to seven years – this is a higher indicator of both our responsibility and confidence in us, as all the loans we receive are unsecured.
What do the foreign lenders pay the most attention to?
– For the lenders, the quality of the company’s top management and team is of great importance. We have been working with the foreign lenders for a long time and have gained certain trust and goodwill.
We have a strong enough team that has developed over the years. Our branch directors all come from the loan officers, and we invest a lot in education and training of people because our business model of the company suggests significant impact of human factor in conclusion of the transactions.
Rural people are most often far from digital technologies, it is easier and clearer for them to come to the office, to talk to our employee, than to take a loan online. So our people have to be prepared to talk a lot, explain a lot and be able to answer any questions a client may have.
Does the status of a public company on the stock exchange scare you?
– We have been operating according to high international standards since the beginning, so we are used to openness and transparency. When we were at the initial stage of development, we have introduced a corporate governance system: we have the founders, supervisory board (analogue of the board of directors), management board and internal audit service.
The Supervisory Board consists of seven members, six of whom are the independent directors. We report periodically to the Board on all company activities. The Board members travel to the regions and get acquainted with our employees and clients.
We undergo annual audit and publish the results on our website. So – no, we’re not afraid of publicity, we’re used to it.
How did you survive the pandemic?
– With the regulating institution’s permission during this period, we gave the clients the deferrals, but surprisingly most of our clients decided that they did not need a deferral, they were able to perform all their obligations to us.
Thus, we have had a fairly mild lockdown. The quality of the loan portfolio was quite high even during the pandemic. In this sense, our clients are very responsible.
Our NPL (non-performing loans) ratio is currently less than 4%, with 80% of our portfolio being unsecured loans.
Zhanna, you have been working in the Company practically all your life. What’s the most important thing to you about the Company? What values?
– The main value in our Company is people. It’s our team and our clients. Without our clients, we can’t imagine our lives at all. We depend on them, exist for them, and want to be with them for a long time.
State licence from the Agency for Regulation and Development of the Financial Market No. 02.21.0008.M. dated 04.03.2021 for microfinance activities issued by the Agency of the Republic of Kazakhstan on Regulation and Development of the Financial Market.