Lasco Financial Services Limited (LASF) is betting its future growth on its microfinance subsidiary Lasco Microfinance Limited amid the shifting remittance market.

Lasco Financial purchased the microcredit outfit from Scotia Group Jamaica Limited in November 2017 for $1.35 billion and grew the gross loan book to $1.93 billion by March 2019. However, the pandemic impacted its targeted growth due to disruptions it caused to operations at the company. As a result, the gross loan book contracted to $1.01 billion by March 2022. Over the last year, the loan book grew marginally to $1.04 billion.

Managing Director Jacinth Hall-Tracey explained at the company’s annual general meeting (AGM) on Wednesday that the subsidiary generated revenue of $474 million but incurred a net loss of $27 million in the 2023 financial year (FY) ending March 31.

“The key to our future is a profitable microfinance model which will balance the mix of targeted customers, pivoting to more consumer loans from customers employed to more stable sectors. This business we expect will become the dominant earner in the near future while the money transfer business will continue to be highly transactional and digital with smaller margins,” said Hall-Tracey in her presentation at the Jamaica Pegasus hotel.

Lasco Microfinance currently remains one of two associates/subsidiaries of a listed company on the Jamaica Stock Exchange (JSE) yet to receive a microcredit licence from the Bank of Jamaica (BOJ) under the Microcredit Act. The managing director noted that the company now has to sit and wait for the BOJ to make its final decision while it operates under a non-objection. The BOJ has issued 20 microcredit licences since July 2022 from more than 136 applications.

The microcredit company recently made 15 roles redundant as it pursued a reorganisation of its operation to push it back to profitability. It also cut its board size from eight to five in the last year and has shifted its focus to consumer and small- and medium-sized enterprise (SME) loans as it looks to change its trajectory.

When asked if Lasco Financial would raise more equity capital or list Lasco Microfinance on the JSE’s Junior Market, newly minted Executive Chairman James Rawle responded, “We’re not excluding any option because we’re at a pivotal point where we’re looking at all options that are available in the marketplace.”

The push towards microfinance comes as Lasco attempts to transform itself as the remittance market becomes more competitive with new entrants and reduced transaction fees. Jamaica has seen a significant jump in remittance inflows which moved from US$2.42 billion in the 2019 FY to US$3.45 billion in the 2023 FY. However, that has also been marked by the entrance of TFOB (2021) Limited becoming a primary agent for remittances with MoneyGram as a partner and a 17 per cent cut in commissions by MoneyGram in April 2022.

“The rapid development in technology now enables fast and direct payments which pushes us to implement innovations and strategies to grow our transactions. The one key risk that we’ve been anticipating and monitoring over the past three or four years is the decline in our transaction fees. We’re earning half of what we used to earn in 2019 and we’re delivering about 40 per cent more transactions and we’re delivering to you the same revenues. So this is the condition under which we’re performing,” Hall-Tracey expounded as she provided context on the operations.

Lasco Financial as a stand alone entity earned $1.40 billion in revenue in the 2019 FY, while it earned $1.77 billion for the 2023 FY from its core business. The figure jumped to $1.96 billion in the 2022 FY due to the absence of Alliance Financial Services Limited in the market during part of the period. Alliance has since returned and announced its intentions to become an instant payment provider.

Lasco has launched its Visa Gold prepaid card and LascoBiz platform for merchants as part of its move to earn income from other sources. Apart from regaining some customers lost under the prior Lasco Pay prepaid Mastercard, Hall-Tracey admitted that it will take longer for digital adoption in Jamaica. They are currently on budget with the number of cards issued and earnings from it while they are currently developing other features under the BOJ’s regulatory sandbox.

LASF’s first quarter (April to June) revealed that it grew two per cent to $574.35 million, but its operating profit was cut in half to $67.83 million due to higher marketing expenses of its other offerings and the redundancy costs at Lasco Microfinance. Net profit dipped 77 per cent from $82.78 million to $18.82 million.

LASF’s consolidated total assets decreased 11 per cent to $3.82 billion, with the decline being attributed to the decrease in short-term deposits which went to cutting its long-term JMMB Bank loan by $439 million or 42 per cent. Total liabilities also decreased 23 per cent to $1.69 billion, while shareholders’ equity increased to $2.13 billion.

LASF’s stock price closed Thursday at $1.93, which leaves it down by a third in 2023, with a market capitalisation of $2.47 billion.

Company secretary Vincent Chen gave his comments on the appointment of Rawle as chairman of the listed Lasco companies and that the executors which control the largest block of shares stand behind him. The late Lascelles Chin’s widow Dr Eileen Chin and son Wayne Chin were present at the meeting.

A moment of recognition was held for Chin and former director Roald N A Henriques who passed away in July as well.

“We’re still upbeat because we do have a lot of plans in the pipeline, and we can see, compared to the market, that our performance is still ahead of our competitors. Remittance transfers will continue, there’s no doubt about that. People will migrate and send personal transactions back home for their obligations. Our card services will evolve into fully digital services when we know our customers are ready for that as well. Merchant services will continue to increase as more small businesses will organise themselves to accept non-cash payments,” the Lasco Financial leader closed.