CFG Services eyes winning formula

Even though it has already received a nano-finance licence from the Bank of Thailand, CFG Services – commonly known as Ngern Tid Lor – is awaiting a foreign-business licence from the Commerce Ministry to run such an operation.
CFG Services requires a foreign-business licence because the Bank of Tokyo-Mitsubishi UFJ (BTMU) holds 76.9 per cent in Krungsri, following the integration of Krungsri with BTMU’s Bangkok branch in January.
Piyasak said the company still hoped to commence its nano-finance business next month, but it would not be aggressively promoted despite the fact that the chargeable annual rate is 36 per cent.
The 36 per cent per annum includes interest, fees and penalties, unlike its unsecured loans, which charge 28 per cent, but fees and penalties are excluded, he explained.
Based on the high operating cost involved, the rate of 36 per cent for nano-finance might not be sufficient to make a profit, he said, adding that CFG Services should start nano-finance as a pilot project.
It might initially offer this form of lending to vendors in fresh markets where the company currently offers micro-credit, or it might test it out with vendors located close to those markets.
Existing borrowers at fresh markets require loans of between Bt35,000 and Bt40,000, while nano-finance is for individuals seeking to borrow up to Bt100,000 without collateral for use in their business operations.
“We do not think [sufficient] nano-finance borrowers will need credit up to Bt100,000 and, amid the current economic uncertainty, lenders anyway have to think hard about lending to this category of borrower.
The expected small amount of lending required might not be enough to cover the |high operation cost,” he said.
Small business operators who own vehicles might opt to use auto-refinancing, for which the charges are lower than for nano-finance, he added.
Auto refinance, which is also offered by CFG Services, targets low-income and self-employed people without bank statements.
This is an area in which the company will focus more on motorcycle-for-cash in order to expand its customer base, said the managing director. It is offering free personal-accident insurance to new customers who use its motorcycle-for-cash product.
“We target around 200,000 motorcycle customers for next year, a size of lending that is smaller than for our car-for-cash or truck-for-cash products. However, the segment presents an opportunity for us, based on the number of registered motorcycles in Thailand being around 20 million,” he said.
The company plans to drive motorcycle-for-cash lending to 20 per cent of its overall loan portfolio from 10 per cent currently, he said.
However, with the small credit line and short repayment period involved, the proportion will not rise to the level of a major portfolio like trucks or pickups.
CFG Services’ target for outstanding lending this year remains unchanged at Bt16 billion-Bt17 billion, up from Bt13.8 billion last year.
Profit, meanwhile, might not grow by as much as the company’s loan portfolio, said Piyasak.
Micro-finance for fresh-market vendors and auto refinance are the key paths in helping low-income people to access funding, he stressed.
“Micro-finance providers must understand that those clients might not have much financial discipline, therefore we have to have a warning system in place, which is a major operating cost, as is the need for well-trained people,” said the MD.
The company has invested heavily in setting up a quality warning system and engaging and training people in both its front and back offices, as it wants to sustain service quality and a secure customer base, he said.
Sustainable growth for micro-finance business means optimising profit, not maximising profit, he added.