A recent article in Business Day shed light on why the FSB suspended the licence of Blue Financial Services, a player in the micro-lending business.
“The FSB has suspended the licence as a consequence of not submitting financial results,” Blue Financial Services CEO Johan Meiring said…“ If we submit our results by March (2014), they will reassess, (but) because the licence has been suspended we also can’t collect credit life premiums.”
Meiring said a set of financial results had been prepared but a forensic investigation into financial irregularities at the company had delayed publication. “The effect of the fraud or irregularity has created a lack of confidence.”
Credit life insurance enables borrowers to insure repayment of loans in the event they died. The withdrawal of the licence exposed the company to the possibility of more bad debts as it was not in a position to collect credit life insurance premiums from borrowers.
Blue Financial Services now has to use its limited capital to pay for its customers’ credit life insurance monthly premiums in order to reduce the risk of bad debts should a customer die.
The FSB confirmed this week that it had withdrawn the licence in October as the company had not met “statutory requirements”.
Blue Financial Services has not published its financial results for the year ended February last year, and six months ended August 2013. As a result, its shares have been suspended on the JSE. The company has pledged to publish its results by the end of the first quarter this year.
The article fails to distinguish between the licence being “suspended” and “withdrawn”. The FSB website reveals that it was in fact suspended, which is of a less permanent nature than having it withdrawn.
Suspension is a fairly common occurrence when FSPs fail to submit financial statements or compliance reports. Thus far, it appears to have been confined to smaller FSPs. It appears from the report that premiums on the credit life policies were collected separately from the loan repayments, hence the obligation to pay it to the underwriter from its own capital.
The suspension took effect from 31 October 2013. Blue Financial Services was given 5 months in which to publish its financial results.
According to Business Day, Blue Financial Services stopped lending in SA, citing a tough economic climate for unsecured lending. Further, it closed all of its branches in SA following the decision.
Mr Meiring said the local operation had become “noncore” and the company was focused only on rehabilitating its loan book.
The company has in the past said that Blue Financial Services SA would be rebranded and renamed. In SA, it has been reduced to a call centre and an office