Short-Term Lender FairMoney Nigeria Gets Investment Grade Ratings
Uncollateralised lender FairMoney Nigeria gets a BBB rating (not likely to default) with a stable outlook, an emerging market-focused ratings firm, GCR, said in the latest report. FairMoney Nigeria, one of the fastest-growing short-dated uncollateralised loan providers in Africa’s largest economy commenced operation in 2018 and received its microfinance banking licence from the Central Bank of Nigeria in 2021
Amidst tough economic conditions, growing numbers of Nigerians depend on instant credit services providers to fill their daily cash shortages with less bureaucracy. This has helped individuals and households, with young adults being key customers.
In its latest report, GCR Ratings assigned MyCredit Investments Limited’s, trading as ‘Fairmoney’ Nigerian national scale long-term and short-term issuer ratings of BBB (NG) and A3 (NG) respectively.
The rating firm said it adopted a group analytical approach in the assessment of FairMoney Nigeria, given that the Nigeria arm accounts for up to 85% of the overall lending portfolio of the group as at unaudited 2021 position, in line with our ratings framework.
Predictus SAS was incorporated in Paris, France in 2017 as a non-operating holding company, it added, explaining that the Group comprises, FairMoney Nigeria, FairMoney India and the parent.
The ratings assigned to FairMoney Nigeria reflects the net ungeared position of the group, high cash holdings that support strong liquidity and rapid growth trajectory as demonstrated by the Group over the relatively short operational track-record, GCR stated.
It also noted that these strengths are partly offset by elevated credit risks due to the uncollateralised loan book and a moderate earnings track record.
The group’s total loans and assets grew from €0.6 million and €1 million in the financial year 2018 to EUR47.3 million and EUR65 million at the end-August 2021 respectively, the ratings agency explained.
It detailed that the company’s total customer base has expanded significantly to up to 1.5 million (active accounts) over a short period. Also, the group displayed a relatively good geographical diversification, with operations in Nigeria and recently in India.
Despite the positives, GCR said the competitive position score is offset by the group’s relatively short track record and monoline operations.
It however considers the company’s cash flow and leverage to be a positive rating factor, noting that the group displayed a net ungeared position as at unaudited August 2021, which is a strong positive in support of the ratings.
Similarly, earnings coverage of interest expense is assessed to constitute a moderate risk, matched with low funds from operations.
“Cognisance is taken of the group’s ability to quickly refinance its balance sheet and match assets to liabilities by currencies. We expect the group to maintain the assets and liabilities maturities matching of its balance sheet over the next 12-18months”.
The ratings firm also consider Earnings moderate, reflective of the short operational track-record, while margins are modest against some rated micro-finance peers.
“The risk position is somewhat elevated, given the uncollaterised nature of the loan exposures and the sizeable credit losses recorded in the review period”, it said.
GCR explains that with the recently granted microfinance banking licence, non-performing loans may be reported in the near future against the current practice of writing-off after 90days overdue.
It said the company’s liquidity is supported by the net ungeared position of the group and the short-dated nature of the loan book.
Going forward, GCR Ratings said it could lower the assessment if the group increases leverage without more evidence of the loan book strong receipting.
It said FairMoney Nigeria stable outlook reflects an expectation that the group is relatively new, with the operation still evolving and likely to improve over the medium-term. GCR indicates an expectation that business growth will remain solid and impact positively on overall results over the next 12-18months. #Short-Term Lender FairMoney Nigeria Gets Investment Grade Ratings
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