CFG Services, known for its Ngern Tid Lor brand, is broadening its microfinance programme to under-banked vendors upcountry and also promoting personal accident insurance to this customer segment through its payment-collection staff in an attempt to offse
The company initiated the programme in August 2011 by providing unsecured loans to under-banked people at wet markets in a bid to bring vendors into the mainstream financial system and out of the clutches of loan shark.
Auto refinancing is the core business of CFG, with a total loan portfolio of Bt11.4 billion. The company projects outstanding loans of Bt13.5 billion by year-end.
CFG has provided microfinance to 50 wet markets, of which 34 are in Bangkok. Managing director Piyasak Ukritnukun said the company will place more importance on expanding the programme upcountry, targeting 22 wet markets in main provinces.
By year-end, CFG aims to cover 72-75 wet markets nationwide and the outstanding microfinance loans will be Bt100 million.
"We want to know more about the behaviour of under-banked vendors in the provinces, as most of them don’t have credit-bureau records. Our objective is to help under-banked people have credit-bureau records through the microfinance programme," he said.
So far this year, although its overall business is sound, CFG has continued to experience losses and high rates of non-performing loans in the microfinance programme as it has invested a lot in training payment-collection staff and designing financial education strategies for its under-banked customers.
The cost-to-income of the programme is 130 per cent. Despite the losses, however, microfinance is a long-term investment for CFG, Piyasak said.
"We don’t have a timeline of when we will see a profit from microfinance, and we are not in a hurry to expand the microfinance portfolio, which is small compared with other loan categories. This programme should be left to grow naturally," he said.
Year to date, the company has outstanding microfinance loans of Bt75 million and NPLs of 6 per cent, compared with the global standard of more than 5 per cent for this type of lending.
The company has acknowledged that even if the NPL rate improves, it cannot turn loss to profit quickly. He added that the key to cutting losses would be to increase the productivity of CFG’s staff and find products to increase income instead focusing on lowering NPLs, he said.
CFG, which obtained a licence last year as a non-life insurance broker, uses its branches to sell personal accident policies and motor insurance to auto-refinancing customers.
Personal accident insurance could be adapted to serve the un-bankable segment, as it found in a survey that vendors want insurance against motorcycle accidents, but the premiums must be affordable, he noted.
About 1,000 sales and payment-collection staff have non-life-insurance licences.
The company introduced personal accident insurance with annual premiums of Bt799 to vendors in wet markets early this month, and 143 policies were sold with total premiums of Bt101,057. However, 71 per cent of buyers were not its loan customers.