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Consumer Finance and Leasing Company (Sierra Leone) Limited

Further information for prospective investors

Consumer Finance and Leasing Company (Sierra Leone) Limited


(Formerly Home Finance Company Limited)

Further information for prospective investors

March 2010

Consumer Finance and Leasing Company Limited Page 1


Consumer Finance and Leasing Company (Sierra Leone) Limited
Further information for prospective investors

1. Introduction
This document is submitted by the Consumer Finance and Leasing Company Limited of
Sierra Leone which was previously, a mortgage finance company which is being re-organised
to become the first provider of leasing and hire purchase financing services in the country.

2. Background
The Consumer Finance and Leasing Company Limited established in 2001, as the Home
Finance Company Limited, to provide mortgage financing to households in Sierra Leone.
Whilst the company was able to raise capital of about Le 1.3 billion (approximately USD
325,000), this amount was insufficient to undertake substantial mortgage lending; a process
not helped by the uncertain political events of the time. Although the company was able to
acquire the building in which it currently resides, the business has not effectively traded
since 2003.

3. Project Description and Objective


In that light, the current Board, with the assistance of external consultants, have undertaken
a strategic review with a view to re-starting the operations of the company. The broad
conclusion is that the company can commence operations as a leasing and hire purchase
company providing services to households and businesses. This conclusion is further
supported by the work of an established market research company who has conducted a
nationwide market research exercise. There is currently no hire purchase or lease financing
company in Sierra Leone. The Board is extremely happy with the results of the process and
believe that it can now proceed with the re-organisation of the company. The company
intends to commence operation on the 1st of June, 2010.

The preparatory work included the development of a business plan which seeks to develop
an overall framework for the company as well as preparation of full financial forecasts
incorporating the new strategic and operational stance of the company. The strategic and
operational direction of the company is defined to be very efficient with a substantial
technology input to reduce longer term operating costs. The staffing requirement of less
than 20 represents the optimum level given the operational arrangements but would
require effective leadership in all respects to ensure successful implementation. The plan
sets out some of the detailed risk metrics, job descriptions as well as financial sector
development framework which would be important in establishing a clear and consistent
strategic direction for the company.

The objective of the plan is three-fold


i) To articulate and present a sound technical basis to source the required recapitalised
equity of approximately Le10bn (USD2.5m at current exchange rates);
ii) To provide both existing and potential investors with full and convincing information
on the proposed re-organisation and operations of the company as well as its
inherent merits; and
iii) To establish the case for a viable and potentially profitable consumer financing
company that will contribute directly and meaningfully to the development of the
national financial architecture.

Consumer Finance and Leasing Company Limited Page 2


Consumer Finance and Leasing Company (Sierra Leone) Limited
Further information for prospective investors

4. The Environment
4.1. The Business Environment
The business climate in Sierra Leone is currently moderately positive although there is still
immense room for improvement. The new GoSL which assumed power on 8th October 2007
committed itself to strengthening and building on the foundations laid by the previous
government. The financial sector has received substantial legislative attention as the
government seeks to further the development of the sector. The government has signalled
its commitment towards the development of this sector by granting licenses to new
entrants. The Government is also aware that the current public sector inefficiencies (e.g.
bureaucracy and corruption) need to be addressed in order to improve private sector
performance.

The economy continues to enjoy positive rates of economic growth though this is likely to
reduce slightly in 2010 as part of the continuing response to global economic trends. The
drop in receipts from international donors will increase the focus on the government
budget. This might force the government to adopt fiscal policies (higher taxation levels) that
might have a negative impact on businesses. Although the government cannot afford to
place extreme emphasis on short-term revenue generation, it is worth noting that reducing
the current budget deficit will help reduce the extremely high cost of debt finance (which is
also a problem for businesses in Sierra Leone).

The financial services sector has benefited from increased legal and regulatory action over
the last few years, although there is still immense room for improvement. The majority of
the laws had become outdated; hence the changes seen by the introduction of new rules
(e.g. banking (Amendment) Act 2005, Companies Act 2009, Bankruptcy Act 2009, Payment
Systems Act 2009 and the Securities Act 2009) have been quite positive.

Even though the business environment remains challenging, there are significant advantages
to be gained by ‘first movers’ especially as there is now clear and wider understanding that
it is indeed private sector activity that will drive forward the economy of Sierra Leone.

4.2 Sector Developments and Prospects


There has been significant development in the financial services sector over the last couple
of years. The increased competitiveness (attributable to the large number of new entrants)
has improved the quality and range of services offered to the market.

The banking sub sector dominates the financial sector with 14 commercial banks, 2
development banks, 6 community banks, and 1 Investment Bank and who are regulated by
the Bank of Sierra Leone (the central bank) whilst the Sierra Leone Insurance Commission
(SLICOM) regulates the insurance companies. In addition, the Association of Commercial
Banks (ACB) and the Sierra Leone Insurance Association (SLIA) are the two main industry
bodies in this space. The Insurance sector is also well established and continues to show
great promise (in terms of growth potential). There are currently 4 established entities and 3
relatively new market entrants. The insurance space is also made up of insurance brokers
that act on behalf of clients in their dealings with insurance companies.

Consumer Finance and Leasing Company Limited Page 3


Consumer Finance and Leasing Company (Sierra Leone) Limited
Further information for prospective investors

The rest of the financial sector is made up of Microfinance Institutions (MFIs), Discount
houses, the National Social Security and Insurance Trust (NASSIT), The Sierra Leone Stock
Exchange, Private Equity funds, Foreign Exchange bureaus, the Informal Financial Sector,
and the recently formed Home Finance Company (HFC Savings and Mortgages).

Though the financial sector has made some improvements it is still quite narrow. It lacks the
variety of adequately strengthened institutions required to deepen the financial system.
There are, for example, no specialist financial companies involved in leasing, hire purchase,
agricultural and rural finance.

The variety is even more important in the context of a substantially varied target market
which requires different forms and levels of financing. In terms of the level of financing, this
ranges from informal sector and local financing, to micro-financing and higher level
financing by commercial banks and similar entities.

Consumer Finance and Leasing Company Limited Page 4


Consumer Finance and Leasing Company (Sierra Leone) Limited
Further information for prospective investors

5. Strategic Vision – Plans and Implementation


5.1. Strategic Alignment
The strategic alignment process is necessitated by a new mandate which focuses on the
provision of short to medium term household financing and which also demands a new
vision, mission statement, and core values which should give organisational direction to the
company. Overall, the new strategic framework should provide for organisational direction
for action, the building blocks for organisational design as well as the basis for the
assessment of organisational performance.

5.1.1 Mandate, Vision and Mission Statements


The vision statement represents a vivid and idealised description of the desired
outcome and should engulf the broad mandate of the organisation. Furthermore, the
vision statement should be motivational, idealistic, compact and broadly verifiable.

5.1.2 Mission Statement


The mission statement describes the overall purpose of the organization indicating
the end goals (what it wants to achieve as an entity based on our mandates), process
goals, (means for achieving the end goals), target beneficiaries (households in Sierra
Leone) and the outcomes which should be verifiable, measureable and compact.

5.1.3 Core Values


The explicit statement on core values represents the core priorities in the
organisation’s culture.

Text Box 5.1 Consumer Finance and Leasing Company – New Vision, Mission and
Core Values
Vision Statement
A specialised financial services provider that will contribute to the socio-economic
development of Sierra Leone.

Mission Statement
Contributing to the deepening and development of the financial sector in Sierra Leone
through the provision of consumer and business financing for the benefit of Sierra
Leoneans and other enterprises.

Core Values: Integrity, Openness, Service, and Partnership

The mandate, vision, mission and core values define the direction of the company which is
very important in ensuring consistency of action and direction in achieving success and the
desired goals of the company. There must be a process of socialisation of the strategic
direction of the company which is important in ensuring cohesiveness and a team ethic.

5.2. Corporate Structure


5.2.1 Legal Entity
The current legal status is a public limited company where the shares are held by
individuals associated with the company at inception. In view of the nature of the
business, the company may choose to raise additional finance at various stages to
Consumer Finance and Leasing Company Limited Page 5
Consumer Finance and Leasing Company (Sierra Leone) Limited
Further information for prospective investors

support its growth strategy and this would be more easily achieved with a public
limited company status with a stock market listing. Even though the stock market
remains in an embryonic stage, there are marketing advantages to be gained from
this association. Additionally, the listing will also create an exit route for investors.

5.2.2 Organisational Structure


Organisational structures are often organised around themes; be they inputs,
outputs, geographical areas, tasks, stage of growth as well as possibly, the business
and service environment. In view of the foregoing, the proposed organisational
structure is based on functional outputs and tasks.

Figure 5.1 Consumer Finance and Leasing Company - Organisational Structure

Board of Directors

Internal Audit

Chief Executive Officer

Manager Manager Manager Manager


Loan Operations Marketing & Business Finance Support Services
Development
Credit

Lending Unit Administration

Portfolio Management Human Resources

Management Info Sys

The organisational structure proposed is relatively flat with clear lines of


responsibility and a narrow span of control. Given the likely nature and volume of
transactions, the proposed structure is also cost effective and not likely to lead to the
organisational drift often associated with a wide span of control.

5.3 Project Implementation & Management


5.3.1 Management Team
The Board plans to move quickly to put in place long term management of the
company after the completion of first stage of the fundraising exercise. The
management will now take primary responsibility for the implementation of this
business plan.

Consumer Finance and Leasing Company Limited Page 6


Consumer Finance and Leasing Company (Sierra Leone) Limited
Further information for prospective investors

5.3.2 Legal Advisers


Basma and Macaulay, Main Motor Road, Brookfields, Freetown
Basma and Macaulay is one of the foremost law firms in Sierra Leone specialising in
corporate and civil law. www.basmaandmacaulay.com

5.3.3 Business Consultants


B&C Services Consulting, Sanders Street, Freetown
Messrs B&C Services Consulting is a chartered accounting and business consulting
firm providing services to public and private entities, both locally and internationally.

5.4 Strategic Sponsors and Partners


Strategically, the company must develop partnership with
a) At least three banks with substantial branch footprint;
b) Two insurance companies to insure the goods acquired. The market survey has already
established the positive perception of banks in terms of trustworthiness which can be
leveraged to provide a better service than is often associated with banks.
c) Approved service providers including retailers and wholesalers – from whom potential
customers would acquire goods and

Strategic Partners
a) Sierra Leone Commercial Bank Limited (SLCB) was established by the Government of
Sierra Leone in 1973 and is currently the largest bank in Sierra Leone in terms of deposits
and branches (11).

b) Rokel Commercial Bank Limited (RCB), formerly Barclays Bank Plc, is the second largest
commercial bank in Sierra Leone in terms of deposits. It is majority-owned by the
Government of Sierra Leone (51%) with the remainder owned by private investors and
the staff.

c) Union Trust Bank Limited (UTB) was established some 15 years ago and remains the only
indigenous privately owned commercial bank in Sierra Leone with 9 branches and
numerous outlets. The bank remains the primary agent for Western Union and has
recently benefitted from external investment by the Soros Foundation based in New
York.

d) Aureol Insurance Company (AIC) Limited is the largest insurance company in Sierra
Leone with revenues of around USD2.5m in 2009. The company continues to maintain a
strong partnership with reinsurance companies in Africa and Europe.

e) Reliance Insurance Trust Corporation Limited (RITCORP) is the second largest insurance
company in Sierra Leone with total revenue of about USD 2 million. The company is also
privately-owned and, like the Aureol Insurance Company Limited, continues to be a
leading player in the development of the insurance sector in the sub region.

5.5 Operational Strategy


The delivery of the service demands an operational strategy which is adequately aligned not
least to the results of the nationwide market research conducted. Given that poor service

Consumer Finance and Leasing Company Limited Page 7


Consumer Finance and Leasing Company (Sierra Leone) Limited
Further information for prospective investors

has been identified by potential customers as one of the key reasons for seeking other
sources of household finance in preference to existing service providers, excellence and
ease of service delivery remains one of the key factors that would determine the success of
the company. This must inform the development of the operational strategy.

There are certain basic features of service delivery which must include the following:
 Delivery Channels – the service delivery channels will include the branches and outlets of
the 2 partner banks, branches of partner insurance companies as well as the main office
in Freetown. These branches and outlets will provide application forms as well as
receive them together with the application fee. In certain circumstances, the staff may
be required to give advice.
 In addition, the company will offer a customer service facility by telephone and internet.
 The company will also provide a standardised document which could help inform
potential customers of the nature of the products in trying to decide on the preferred
option.

Figure 5.2 Service Work Flow for Hire Purchase and Leasing Applications
Decision Notice to
applicant through 4
intermediary

Banks, Insurance 3
HFC Office for
Companies and Assessment of
HFC Office both applications

Identifies item(s)
1 with approved 5
HP and Leasing service providers
Application & Insurance and submit SERVICE PROVIDER
Forms, Information completed forms Complete internal
Sheets, List of approved with application fee process (including
6
forms to insurance
service providers
company) and
INSURANCE
2 disburse funds COMPANY

APPLICANTS Makes regular repayments to


7 HFC via bank process and
disburse funds and contact
Customer Services

Figure 5.2 presents the service workflow which aims to shorten the number of days between
application and disbursement of funds. It is our aim that this should be no more than 4
days. Part of that process involves HFC being able to make decisions on the insurance
component as well without immediate recourse to the insurance company. It is also the
case that the application provided to the applicant should be adequately comprehensive to
avoid repeat visits and queries. In future, decisions could be made at the initial contact
points when the risk metrics have been incorporated into the software application.

Consumer Finance and Leasing Company Limited Page 8


Consumer Finance and Leasing Company (Sierra Leone) Limited
Further information for prospective investors

6. Financial Projections and Funding Requirements


6.1 Financial Projections
The financial projections show that the company will become profitable by second year of
operations provided that there is sufficient capital. The projections anticipate substantial
revenue growth over time starting with about USD 400,000 in Year 1 and doubling by 2014.
A substantial amount of capital is required given the nature of the business and our estimate
of the capital requirement is Le10 billion (about USD 2.5m, at current exchange rates) which
is incorporated into the financial projections contained in the business plan.

2014 2013 2012 2011 2010


Total Revenue (Le, m) 3,646 3,063 2,673 2,013 1,541
Operating Costs 2,553 2,368 2,128 1,858 1,684
Operating profit / (loss) (Le, m) 1,093 695 544 245 (143)
Net Cashflow (Le, m) ( 450) ( 240) ( 790) (1,100) (4,300)

High revenue growth and minimal expenditure growth results in an upward profitability
trend over the forecast horizon.

6.2. Funding Requirements


6.2.1 Equity Capital

The company seeks equity capital of USD 2.5 million (at current exchange rates) to support
the commencement of operations. It is to be used to fund the core leasing and hire
purchase business. New Local investors have been invited to subscribe to the equity of the
company. The company is seeking to raise additional capital of about USD2.5m at Le 40,000
per shares as indicated in Table 6.1.

Table 6.1 Existing and Proposed Share Structure


No. of shares in Value of shares Value of shares
issue (Le) (USD)1
(approximately)
Existing 127,525 1,275,250,000 317,000
Proposed Issue 250,000 10,000,000,000 2,500,000
(at Le40,000 per share)
Total after new issue 377,525 11,275,250,000 2,817,000

Beyond 2010, calls for capital could be met through a further issue of shares on the Sierra
Leone Stock Exchange.

1
At current exchange rates

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Consumer Finance and Leasing Company (Sierra Leone) Limited
Further information for prospective investors

6.2.2 Debt financing


Debt financing via an overdraft facility of around USD 400,000 is required to support
the company given that the equity capital contributions are assumed to be met over
a 3-year period. The local bank shareholders in Sierra Leone have provisionally
agreed to provide this financing. This facility will be secured by the property asset of
the company which is currently valued in excess of USD 1 million.

6.2.3 Line of Credit


An open ‘Line of Credit’ to support higher levels of business than is currently and
conservatively estimated is also requested. Our forecasts and projections are based
on fairly conservative terms and arrangements need to be made in the event that
the business out-turn exceeds the current estimates.

6.3. Collateral Offered


It has already been indicated that the company has property assets, conservatively
estimated at USD 1 million.

Consumer Finance and Leasing Company Limited Page 10


Consumer Finance and Leasing Company (Sierra Leone) Limited
Further information for prospective investors

7. Implementation Timeframe
Given the proposed commencement date of 1st June 2010, the company anticipates being
able to complete the preparatory work by that time.

8. Company Summary
No. Company Summary Details/Description
1 Name Consumer Finance and Leasing Company Limited
2 Location (Head Office) Freetown, Sierra Leone
3 Legal Domicile Republic of Sierra Leone
4 Legal form/structure Company limited by shares
5 Country focus Republic of Sierra Leone
6 Sector Consumer Finance and Leasing
7 Current Business Focus (i) Provision of mortgage finance to individuals but this has
been reviewed and the new focus is on leasing and hire
purchase.
8 Ownership structure Public Liability Company with shares held by a diverse group
of individuals
9 Key Contacts i) Chairman & Board
ii) Consultants – Messrs B&C Services Consulting
10 Stage of development Stagnant Business
11 Governance Structure & The Board of Directors are responsible for the overall
Board of Directors governance of the company and its membership includes:
 James Sanpha Koroma, (Chairman) - no direct
shareholding
 (Emile Carr 500 shares via Leone Consulting
 Hon Brima Conteh – 100 shares
 Ms. Adama Wurie – 500 shares
 Managing Director, Sierra Leone Commercial Bank
Limited (10,000)
 Mr. Francis Matturi, representing Sierratel Pension Fund
(20,000) shares
12 Financial Audit Status Last audit conducted for the financial year ended 2005
13 Key issues Raising Capital
i) The need to refocus the business on less capital intensive
areas and the board are proposing that the company should
now focus on consumer leasing and hire purchase financing.

Governance and Management Structure


ii) To further strengthen the governance structure through
the establishment of appropriate systems and processes

Recruitment
iii) To recruit the executive management team to lead the
operational management of the business.

Consumer Finance and Leasing Company Limited Page 11

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