Access Financial Services Limited, the largest microcredit company on the Jamaica Stock Exchange (JSE), presents a complex case of growth without commensurate profitability. With over $5.39 billion in net loans, primarily geared towards lower-income earners, the company’s loan portfolio has nearly doubled since 2018. Yet, despite this growth, profits have dwindled, raising questions for investors about the future trajectory of the company.
Access Financial is a well-established microcredit firm that serves the everyday Jamaican, offering financial support to individuals in need of capital for personal needs, small business growth, or hire purchases. The company, founded by Marcus James, has been a mainstay in the microcredit sector since its inception in 2000 and has achieved several firsts, including being the first to list on the JSE Junior Market in 2009, the first to list on the JSE Bond Market in 2013, and the first microcredit company to receive a licence from the Bank of Jamaica in 2022.
At its peak in 2018, Access Financial generated $1.46 billion in interest income from a $2.93 billion loan book. This led to an impressive $716 million in net profits and a stock price peak of $56. Fast forward to 2024, and while the company’s loan book has grown to $5.39 billion, profits have drastically fallen to $391.77 million, with the stock price dropping to $21.21.
What Happened?
Several factors contribute to this decline in profitability, despite the company’s growth:
- Increased Competition: The microcredit market has expanded significantly, and the recent Microcredit Act has brought more players into the regulated space. This heightened competition, coupled with increased visibility for smaller players, has forced companies like Access Financial to compete more aggressively on price and services.
- Bank Competition: Commercial banks have become more competitive, offering lower-cost, faster loans to the same customer base Access serves. With many banks using advanced data analytics and personalized marketing, customers are now more likely to choose traditional banks, which offer lower interest rates and quicker loan disbursement.
- Customer Shifts: High-quality borrowers, who previously would have approached microcredit firms, are now choosing banks and other financial institutions offering better terms. This leaves microcredit firms with a customer base that may be more financially vulnerable, increasing the risk of defaults and requiring more conservative lending practices.
- Operational Costs: Rising interest expenses, staff costs due to inflation, and higher credit impairment provisions have all eroded Access Financial’s margins. The company’s loan write-offs have also increased from $224.5 million in 2018 to $177.48 million in 2024, with a higher percentage of loans now past due by 90 days or more.
Strategic Responses
Despite these challenges, Access Financial has taken steps to strengthen its position in the market. The company launched the AFS MyAccess Jamaica mobile app in 2023 to streamline the loan application process and improve customer experience. It also acquired customer relationship management tools to optimize loan servicing and lead management systems for better sales conversion.
However, the question remains: does Access need to pivot its strategy to target higher-net-worth clients or increase its focus on business loans, similar to competitors like Dolla Financial Services Limited? With a rising number of loan defaults and an evolving competitive landscape, the company may need to diversify its offerings or explore new market segments to maintain profitability.
Leadership Transition
Adding to the uncertainty is the temporary absence of Access Financial’s founder and Executive Chairman, Marcus James, who took a one-year leave of absence in June 2024. His departure comes amidst personal legal battles, leaving the company’s leadership in the hands of Michael Shaw, the lead independent director. While James’ absence may impact the company’s strategic direction, Access continues to be supported by a strong shareholder base, including Proven Group Limited, which holds a 24.72% stake.
Looking Ahead
With the Bank of Jamaica’s recent rate cut, there may be room for optimism as lower interest rates could stimulate demand for loans and improve margins. However, the company must remain vigilant in managing credit risk and maintaining operational efficiency.
For investors, the key question is whether Access Financial can adjust to the new realities of the microcredit sector and return to its former profitability. With a strong brand and a history of innovation, the company has the tools to succeed, but it will need to navigate the changing landscape carefully.
