Despite the significant and far-reaching effects of the novel coronavirus (COVID-19), the Sarwa Capital Holding Company for Financial Investments has reported strong growth during 2020.
Much of the rest of the economy in Egypt, and worldwide, has taken a financial hit, causing problems in liquidity. Sarwa Capital has, instead, seen a surge in its financing portfolio which grew to EGP 6.9bn by the end of the first half (H1) of 2020.
Saeed Zaatar, CEO of Sarwa Capital Group, sat down with Daily News Egypt to highlight the ongoing successes of his company’s performance.
Since its establishment in 2001, the Sarwa Group has distinguished itself by providing pioneering financing solutions and services. Its finance and insurance activities have gained recognition for both excellence and high quality, in addition to providing the easiest procedures to reach a broad sector of the market through Contact Credit, the largest subsidiary and financing arm of the group.
In addition, the company has become the first and largest source for securitisation bonds in Egypt in various fields, with a total value of approximately EGP 21bn through 29 issues since 2005.
Zaatar sat down with Daily News Egypt to explain more.
Can you update us on the Sarwa Group’s latest news?
Despite the difficult challenges that we faced in 2020, we have managed to obtain the first consumer finance licence in Egypt this year. The company was the first to be officially approved by the Traffic Department to licence cars funded by us.
This is the result of great efforts from multiple parties, inside and outside the company, to maintain the same ease of procedures and the quality of service provided to Contact clients. These have made us pioneers in the field for over 18 years, particularly as we were also the first consumer finance company in Egypt.
We are happy with this development in the legislative and supervisory role that the authority is currently playing to support the consumer finance sector, which is one of the most vital sectors of the Egyptian economy. We have had a major role in supporting efforts to regulate this sector, in addition to organising the financing infrastructure, the debt instruments market, and the legislative framework in general.
What is the size of Contact’s funding?
The volume of consumer financing provided by Contact has reached more than EGP 20bn since its inception, excluding real estate financing. The total financing portfolio grew to EGP 6.9bn by the end of the first half (H1) of 2020, reflecting an increase of 9% compared to the same period in 2019.
Contact adopts an innovative approach to ensure that it provides the highest quality of service, and the easiest procedures to finance the purchase of new and used vehicles. We also provide financing for durable goods, household furniture, club subscriptions, and insurance policies, alongside real estate financing and finishing programmes to participate in the Central Bank of Egypt (CBE) initiative to finance low-income units.
In the real estate finance field, Contact Real Estate Finance is the largest company in the private sector, in terms of the volume of financing for low-income people.
Contact also finances trade programmes, by providing financial leasing and factoring services that focus on small- and medium-sized enterprises (SMEs) in the medical and transportation sectors. There are some other sectors that the company wants to expand in during the coming period.
What impact has COVID-19 had on the company?
So far, our expansion plans have not been affected by recent events. On the contrary, we have already announced that we are working to invest heavily in digital transformation and technological infrastructure, in terms of both consumer finance and insurance services.
As part of our efforts towards the digital transformation of the Group, we succeeded in the second quarter (Q2) of this year in developing the platform for the instalment of goods. This worked to add many stores and distributors, and increase the number of points of sale (POS), within the Contact network.
We also added new products that we did not have before such as jewellery, clothing, and golf cart instalments, along with electric vehicles and scooters. This ran alongside the new instalment programmes for electronics, furniture, durable goods and car accessories. As a result, we are in the process of rebranding the consumer finance product from “Get Go” to “Contact Shopping”.
In terms of developing our products, we have recently added more advantages to the various financing programmes offered to our customers. For example, we have added a new service in the car instalment programme, which is the “Trade-in” service exclusively for our customers, which facilitates the procedures for selling used cars in the middle of the instalment period. Customers will be able to transfer the remaining amount to buy another new or used car with Contact and its distributor network.
We also offer additional discounts and benefits in the event that the new car is paid in instalments with the company. This will regulate the secondary car market, and guarantee our customers’ rights in an easy and safe way.
We are working on the launch of a loyalty scheme for all Contact clients, which will allow our customers from various instalment programmes to earn and redeem rewards. This will take place in the form of discounts and exclusive offers on shopping through our network of distributors. The network has now reached more than 1,000 POS all over the country. We aim, with this programme, to reach the maximum level of customer satisfaction, as well as to offer unique and easy financing solutions for individuals in the Egyptian market.
The company used the curfew period to raise the efficiency of our customer service provision, by developing and training a call centre service to ensure we increase the level of customer satisfaction. We believe that a period of crisis must be used to prepare for the growth opportunities that come after. This is what we have accomplished in the past few years and we are all optimistic about the promising opportunities in the consumer finance sector in the coming period.
We have strengthened our presence in the governorates outside Cairo and Alexandria, by expanding the network of Contact branches in both Upper Egypt and the Delta region. New branches have been opened in Minya and Sohag, running alongside the strong presence in Assiut.
As for the Delta region, we opened branches in Damanhour, Damietta, Zagazig, and Alexandria. In support of the state’s consumer finance initiative, this is in line with government efforts to revitalise local consumption nationwide.
On the level of insurance activities, within only one year of operating the Sarwa Insurance and Life Insurance companies, we were able to open three branches in Cairo and Alexandria. These have contributed to strengthening our presence in the Egyptian insurance market in a short period of time.
Can you tell us about the FRA’s recent decision regarding instalment availability for sports club subscriptions and insurance policies?
First, I would like to thank the Financial Regulatory Authority (FRA) for providing companies with the opportunity to be involved in discussing the frameworks of the Consumer Regulation Law. The most prominent evidence of this is this recent decision, which came in response to the request submitted by us, and which allows the addition of activities after the authority’s approval.
We were the pioneers in paying club subscriptions and insurance policies, and we found it necessary to subordinate them to activities under the umbrella of consumer finance law.
We have recently seen intensive efforts by the FRA towards developing and modernising the legislative and supervisory structure for non-banking financial activities. This took place in cooperation with companies operating in the field, which recently contributed to the rapid pace of growth in the consumer finance sector.
How did you react to the Sarwa Insurance and Life Insurance companies’ performance?
At the insurance sector level, we are happy with the achievements of the two insurance companies in their first year. The group recorded total insurance premiums at Sarwa Insurance and Sarwa Life Insurance companies of EGP 131m in H1 of 2020 at a rate of 470% compared to the same period in 2019. The substantial increase was mainly supported by general insurance activities.
Additionally, income from insurance activities reached EGP 180m in H1 of 2020, growing by 154% compared to the same period in 2019. Operating income increased to EGP 75m compared to the previous EGP 27m.
How did Sarwa Capital perform in H1 of 2020?
Despite the unprecedented events that the market witnessed as a result of the coronavirus crisis, the combined net profit has reached EGP 210m for H1 of 2020. This reflected an increase of 9% on a comparative basis, before the deduction of allocations to counter the repercussions of the pandemic. It also took into account the new insurance activity and the application of transactional tax on new treasury bills.
We have increased provisions this year by EGP 49m in anticipation of applying the IFRS9 standard by the end of the year, which has been followed by all companies operating in the non-banking financial sector this year. Also the average rate of return on equity reached 13.1% in Q1 of 2020.
Despite the repercussions of the global health crisis, operating income from financing activity remained at EGP 406m, the same level as 2019, which amounted to EGP 411m. The total financing income reached EGP 756m in H1 of this year, compared to EGP 773m last year.
Have car sales on instalments been affected by the CBE’s interest rate cut?
We believe that reducing the interest rate may motivate individuals in making a financing decision, and increase the demand for buying cars. This will take place with the support of a stability in car prices during the coming period, in conjunction with the reopening of services.
A new marketing campaign has also been launched for the latest car purchase instalment systems that we started promoting at the end of Q1. For this year, it is a new direction for the company, as we aim to reach the largest customer and distributor base in the Egyptian market.
What are your expectations for Egypt’s car sales this year?
We are optimistic about the auto market, because we are witnessing strong demand from customers. However, it is linked to several factors such as the stability of car prices with a reduction in interest on financing, which will increase the sales volume of the market as a whole. We noticed this in turn from the 2% growth in volume of new financing for passenger cars during H1 of 2020.
There was also a significant growth in the volume of our business in June, after the market returned to normal working hours.