Shane Leas is quite comfortable leading the finance function at large and complex organisations, and now as Group CFO at Select Africa Limited, he provides some fascinating insight to the African growth story that is microfinance.
Today’s podcast is sponsored by Draftworx, which provides automated drafting and working paper financial software to more than 8000 accounting and auditing firms and corporations. CFO Talks is a brand of the South African Institute of Business Accountants.
Can you start off by explaining what the Select Africa Group does and I think we’re going to have to go into a bit of detail on microfinancing and what that is, that may be something fairly unique to emerging economies. Also, give us a sense of Select Africa in terms of size, customer numbers, loan book and so on.
The Select Group is a financial services group, which has been in existence for over 20 years. We do primarily focus on the extension of unsecured housing microfinance loans, educational loans and other consumer-type loans. Select’s focus is in servicing the unbanked or entry-level retail credit market, which is often overlooked by the formal banking sector. Now, this is due to clients being deemed too small or too risky because it’s unsecured, or maybe even unprofitable.
Select Africa operates in Kenya, Malawi, Eswatini, Lesotho and Uganda. A typical select customer who we target would typically be government servants, so government servants like policemen, nurses and teachers. The majority of our loan books are collected through governmental payroll deductions, which obviously reduces our bad debt risk substantially. Currently we’re sitting with just under 60 000 individual clients across the various businesses.
The loan books vary on a month-to-month basis but currently we’re sitting on about R1.5 billion of loan book value.
Select Africa also completed a retail and residential housing development in Eswatini. We started this in around 2017, which was completed in 2020, and that basically was a retail offering where we have typical long-term leases in place with the likes of Pick n Pay, West Pack and KFC. Then the residential offering consists of about 150 completed apartments, which we offered to the rental market. We are in the process of developing approximately 600 additional residential units and we’re also going to develop further retail offerings to support the growing demand specifically in Eswatini.
What has been Select’s experience during the Covid period?
Similar to our competition and our industry, we have been quite resilient, we did feel a bit of a pinch, not so much in collecting but in dispersing because with the various restrictions in countries we couldn’t disperse to the extent that we wanted to, so our loan books were being watered down a bit. But from a profitability point of view, we were definitely much better than many other industries, we experienced some growth, even during Covid. About 85% of our customers are collected on through government payroll and because we target mainly government employees, the risk is also less because government employees carry less risk, for example, during Covid, government employees were not retrenched, they get inflationary increases each year and they also don’t tend to abscond from work.
How do you fund your growth in the customer loan books, where is your source of capital?
That’s a very relevant question, Select has various existing funding sources, and we continually seek new funding partnerships. As a non-deposit taking institution, Select raises wholesale funding that it lends to its customers. Our current funding structure is diverse, it includes shareholder funding, both debt and equity. Then we have listed and unlisted medium-term notes on the local capital market. Then we have debt structures with impact investors, developmental financial institutions. Then we also have other debt structures with third party corporates and sovereign wealth funds, pension funds and so on. Then, of course, we do have overdraft facilities with local commercial banks but that’s mainly there to fund working capital. The size of the loan book currently is around R1.5 billion.
We have raised US$150 million through the medium-note programme but that’s since 2007.
Let’s talk about some lessons for up-and-coming accountants, tell us what advice you would give to them, do you need a mentor, do you need to continue studying, what’s your advice?
If I had to just simply state it in three points, and this is whether you want to be a CFO or an accountant in your own practice or whatever:
One needs to consciously choose and try to make the correct decisions, and normally the correct decisions tend not to be the easiest, but if you consciously try to make the right decisions every day, I think the probability of you being successful is just higher.
Surround yourself with positive and enriching people, both in your work and your personal capacity. One shouldn’t waste time with negativity, time wasted with negativity is time gone forever.
Work hard from day one. I always say that I see one’s career as similar to riding a bicycle, the harder you peddle, the more momentum you gain to carry you up that hill. Just keep that momentum and just keep on peddling.
I think it’s fair to say that accounting is an enriching career because you really are the brains trust in an organisation. Many of the CFOs who we speak to are really sitting at the very top of the organisations that they serve, and they are expected to provide some assistance and guidance to the CEO. They become the decision-makers and more important than that, they are the people with the levers on the cash tills, they tell you whether you can spend or not spend. What are your thoughts on that?
Exactly, I see a CFO in the sense that a CA should be the blue-sky thinker and the CFO should be the more practical person. Sometimes a CFO can be seen as a handbrake, but I think a CFO should be a more realistic type of person, between a strong CFO and a wider thinking CA I think is exactly what you need in an organisation. I 100% agree with your statement.
How much of your toolkit as a CFO is experience and how much of it is academic leaning?
That’s a difficult question but I would say 80% practical experience and 20% academic leaning. Without gaining the actual practical experience, I think it’s quite difficult to put the theory in context, but one needs both. Definitely with me, the longer my career progresses, the more I rely on experience. Although, being a CA I think one always falls back to a certain extent to the theory, but I also strongly believe in continuous development. Without that, your academic learnings quickly become irrelevant if you don’t continuously learn.
Particularly in this profession, things change quickly, accounting standards change quickly, and one needs to keep up with that.
The South African Institute of Business Accountants has a designation called CFO (SA), certified financial officer, and it’s basically there as an acknowledgement to people who have climbed the ladder through this experiential route, and the hard-won experiences are often hard to define. In my discussions with CFOs it’s things like communication, strategy, team management, motivation, how do you keep your team motivated. You’re not going to learn those kinds of things in the classroom, would you agree?
I agree 100%. Also, the thing with experience is that it’s not necessarily that you go home after work and realise that I have gained this experience, it’s something that you gain over time and in future you’ll come into a scenario where you naturally fall back on past experiences. I agree with you, 80% of my experience I could not have learnt at university or through books. Unfortunately, experience only comes after time. I do think that a lot of young individuals tend to not realise that because you only realise it when you gain the experience.
Are there any books you can recommend?
To be honest, when I read, I tend to read fiction just to get my mind off Monday to Friday, so I tend not to read too many business books. I love Wilbur Smith, one of my favourite authors, he passed away about a year ago. I also enjoy reading various biographies, it’s interesting. I enjoy history a lot, so I have read biographies on old generals, and then various business leaders like Warren Buffett and other influential people.
The original meaning of leadership is to serve your team, is that how you see it, you are there to serve as your team?
Definitely, you are only as strong as your team, you can’t do everything, you put people in roles for the common goal of the team and the organisation. For me personally, when I stepped up into a more senior role, that was probably the more difficult thing for me to empower people to do the work, versus you doing everything yourself, but I believe that’s the only way to be successful as a CFO or as a leader of any team.