The Kingdom of Lesotho

Published by Wade Publications CC

Financial Services & Investment

While relatively small, Lesotho’s financial system boasts a regulatory and supervisory regime for banks and other financial institutions that is of an international standard and has shown resilience to uncertain financial and economic conditions.


Central Bank of Lesotho © Anne Wade

Lesotho’s financial sector is made up of three commercial banks and a post bank, as well as a non-banking sector consisting of insurance companies and micro-finance credit institutions, cooperative banks and moneylenders. The performance of the sector was healthy during 2013, reflected by a ratio of non-performing loans to total assets that remained below 2.8 percent and was completely covered by provisions. Commercial banks’ capital adequacy was maintained at around 16 percent, and the loan to deposit ratio increased to approximately 60 percent. However, according to the 2014 African Economic Outlook, private sector development is hampered by the relatively shallow nature of the system, with broad money supply estimated to be only some 35 percent.

The 2012 Financial Institutions Act provides a comprehensive framework for regulation, registration and supervision of both banking and non-banking financial institutions, with the exception of the insurance industry, cooperatives and the credit bureau. The Payments Systems Act (2014) will provide for the establishment and operation of interbank payment systems, clearing houses and securities settlement systems, including collateral and netting arrangements. The Money Transfer and Forex Regulations as well as Credit Reporting Regulations have also been promulgated, leading to the licensing of a money transfer operator and a credit bureau institution, both of which began operating during 2014.

Economic and financial cooperation in the region is vital, and Lesotho is actively involved in the activities of various regional and international organisations. This includes, among others, the Common Monetary Area (CMA), along with Namibia, Swaziland and South Africa, and also the Southern African Customs Union (SACU), Southern African Development Community (SADC), International Monetary Fund (IMF) and World Bank.

Bilateral and Multilateral Monetary Agreements exist between Lesotho and South Africa. Lesotho’s national currency, the loti, is fixed at par with the South African rand, which is also legal tender in Lesotho. Benefits arising from the CMA arrangement include macroeconomic stability and the elimination of exchange rate risk between Lesotho and South Africa. However, it also poses some challenges for Lesotho, particularly with regard to synchronising fiscal and monetary policies.

Financial Sector Development Strategy
The Financial Sector Development Strategy (FSDS), which was developed with the assistance of the International Monetary Fund (IMF) and the World Bank, was adopted by Government as a working policy document during 2013/14. The strategy is expected to enhance access to credit by augmenting financial inclusion and promoting a savings culture in the country – critical elements for investment and further growth. The FSDS also encompasses the mobilisation of financial resources through the development of capital markets, and improvements in the settlement of transactions that will help speed up the process of regional integration.

MONETARY & FINANCIAL INDICATORS

During 2013, monetary policy operations by the Central Bank of Lesotho (CBL) were geared towards absorbing excess liquidity in the economy with a view to attaining a monetary base target, ensuring that the discount rate on Government’s Treasury bills moved in line with regional interest rates, and attaining the net international reserves target required to maintain the peg between the loti and the rand, as well as the International Monetary Fund’s extended credit facility programme target.

The new National Payments Systems Act will enable the Central Bank of Lesotho to exercise oversight of the payment systems and provide modernised methods of payment, thus ensuring safety, security and stability in the financial system.

The rate of inflation, measured as the percentage change in the Consumer Price Index (CPI), slowed to an average of 5 percent in 2013 from 6.1 percent in 2012. The deceleration in average annual inflation was due to a slowdown in food prices, which carry the most weight in Lesotho’s CPI. Inflation rose during 2014 to reach 6.5 percent by June as a result of increases in food and non-alcoholic beverages, clothing and footwear, housing, electricity, gas and other fuels, and transport. The most significant increase was observed in food and non-alcoholic beverages, mainly reflecting a hike in bread, cereals and meat prices.

Money supply in nominal terms expanded further by 21.2 percent in December 2013 following growth of 7.3 percent to December 2012, in response to a 20.6 percent increase in domestic credit (excluding net claims on Government) and a 26.6 percent rise in net foreign assets. Real growth in money supply also registered a 16.1 percent increase at the end of 2013 following a 2.8 percent increase during the previous year. This was on account of acceleration in nominal money supply that outweighed the moderate increase in inflation.

The loti, which is fixed at par to the rand, appreciated during the second quarter of 2014 as a result of the announcement made by the Federal Reserve Open Market Committee (FOMC) that it had no intention of increasing interest rates in the immediate future. This move weakened the dollar, leading to inflows into emerging markets, including South Africa, and thus strengthening the rand. The appreciation of the rand, and hence the loti, came about despite the industrial action in South Africa’s platinum mines, which impacted negatively on investors’ perception and economic growth. On a quarterly basis, the loti/rand appreciated by an average of 3.1 percent against the US dollar to M10.55, 1.3 percent against the pound Sterling to M17.75 and 2.9 percent against the Euro to M14.46.

During 2013, credit to the private sector rose by 20.6 percent, down from the 39.9 percent increase registered in the year to December 2012. Credit extended to households made up the largest share of domestic credit (65.4 percent), while the share of credit extended to businesses constituted 34.6 percent. Credit extended to households rose moderately by 5.9 percent against the 23.0 percent recorded for December 2012, while business enterprises increased by 30.1 percent compared with a 55.3 percent rise during the previous year.

In the second quarter of 2014, credit extended to business enterprises declined by 14.4 percent compared with a 16.5 percent rise during the previous quarter. Community, social and personal services, construction, mining and electricity gas and water experienced the biggest fall in credit. This is reflective of subdued economic activity during the quarter under review as measured by the economic activity indicator (EAI).

Manufacturing continued to register the largest and growing share of the total credit extended to business enterprises during the quarter to June 2014. This appears to be in line with its contribution to the economy. It is followed by real estate and business services, wholesale, retail, hotel and restaurant and then transport, storage and communication sectors. The share of the community, social and personal services sector is on a steep downward trajectory due to an ongoing reclassification of loans in that sector.

NATIONAL PAYMENTS SYSTEM


Standard Lesotho Bank Private Banking Suite at LCCI Building, corner Mabile and Orpen roads. © Standard Lesotho Bank

 

The Central Bank of Lesotho (CBL) continues to strengthen and maintain the safety and efficiency of the National Payments System (NPS) infrastructure as one of its strategic objectives. To date, the CBL has introduced a number of reform projects. These include the Real-Time Gross Settlement (RTGS) – also known as the ‘Lesotho Wire’ – which was introduced in 2006 to process large value (M100 000 and above) but low volume transactions, as well as time critical transactions. Additionally, the Automated Clearing House (ACH) for Electronic Funds Transfers (EFT) was introduced in 2012 for processing of domestic transactions, and ensures that funds are transferred promptly by reducing the clearance cycle to the same day.

In 2013, the Lesotho Wire was upgraded with the main aim of improving the general efficiency of the system. All the participants were requested to implement Straight Through Processing (STP) that facilitates seamless processing of the RTGS transactions. Another development was the acceptance of the Lesotho PostBank as a participant in the system, meaning that as at December 2013 all the commercial banks in Lesotho were direct participants in the Lesotho Wire. The convenience of these systems is also evident in their usefulness to the public and the extent to which they facilitate financial innovation of other services such as ATMs, point-of-sale (POS) devices, Internet banking and the invention of mobile money.

During 2013, the Bank undertook the implementation of the SADC Integrated Regional Electronic Settlement System (SIRESS), which was carried out in collaboration with other stakeholders, including the Payments Association of Lesotho (PAL) and SADC Payment System Project. SIRESS is a regional RTGS system which is being put in place to settle cross-border payments by electronic means, as opposed to traditional paper-based instruments. This is a step towards realising SADC’s Finance and Investment Protocol (FIP), which envisages the creation of a SADC central bank and a common single currency.

MONEY LAUNDERING

The global financial market continues to focus its attention on the fight against financial crime.
As a member of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), Lesotho has endeavoured to improve its Anti-Money Laundering/Combating Financing of Terrorism (AML/CFT) regime. The Money Laundering and Proceeds of Crime Act of 2008 laid the foundation for the establishment of the Financial Intelligence Unit (FIU) to receive, request, analyse and disseminate to the investigatory and supervisory authorities all financial information at its disposal.

The CBL’s 2014 Financial Institutions Money Transfer Regulations aim to clarify procedures of registering, licensing and supervising Lesotho’s money transfer institutions in an attempt to tighten control of the sector. This entitles the Commissioner, among others, to declare certain business practices undesirable, inspect the premises of money transfer institutions, issue directives and take preventive measures against institutions which have contravened the provisions of the regulations. The new laws are intended to improve the soundness, integrity and stability of the system of money transfer and confidence in the financial sector.

BANKING SECTOR


FNB’s branch at Pioneer Shopping Centre, Maseru © FNB Lesotho

Three of Lesotho’s commercial banks – Standard Lesotho Bank, Nedbank and First National Bank – are foreign-owned, being subsidiaries of South African banks and serving the formal sector, mainly medium and large corporate enterprises and salaried employees in urban and peri-urban areas. In recent times the banks have also begun to finance small and micro businesses. The local, state-owned Lesotho PostBank concentrates its activities in rural areas.

Banks are focused in the capital of Maseru and collectively serve nearly 40 percent of Lesotho’s adult population through 46 branches across the country. During 2013, 19 new ATMs were commissioned, increasing the network to 138 ATMs countrywide, while 206 point-of-sale (POS) terminals were installed, bringing the total to 802. While the distribution of ATMs is improving, they are mainly found in urban centres and the Lesotho lowlands.

Commercial banks are the main source of housing finance in Lesotho. Between 31 March 2011 and 31 March 2013, mortgage loans increased by more than M294 million (over 149 percent) to a level of M492 million, chiefly because of a programme of land titling which has made mortgage lending more appealing. In addition, Select Africa, which operates under the Lesana brand, has since 2013 offered microfinance housing loans tailored to the middle to lower income group.

The Money Transfer Regulations of 2014 enable the traceability of transfer of funds – an important tool in the prevention, investigation and detection of money-laundering or terrorist financing.

According to the Central Bank of Lesotho, the commercial banks’ liquidity ratio rose from 70.8 percent in December 2012 to 83.0 percent in December 2013, following an increase in balances due from banks both in Lesotho and in South Africa. Similarly, the credit to deposit ratio increased from 55.8 percent to 58.0 percent over the same period due to an increase in private sector credit that outweighed the growth in total deposits. By the end of the second quarter of 2014, the liquidity ratio stood at 89.2 percent and the credit to deposit ratio at 55.7 percent.

Lesotho’s banks have performed relatively well over the past few years, despite uncertain international conditions. This is partly due to the effective management of costs and general compliance with the statutory and regulatory requirements. Government is intent on increasing competition in the banking sector as well as improving service delivery to those beyond the reach of the established banking network.

First National Bank of Lesotho Limited (FNBL) www.fnb.co.ls is proud to be at the forefront of digital banking in Lesotho. In 2013 FNB Lesotho introduced the FNB Banking App and FNB .Mobi digital banking platforms in addition to the FNB Online and E Wallet Banking platforms which provide real time transactions 24/7. The FNB Banking App and .Mobi platforms allow customers to perform a range of banking and retail transactions, such as transferring money between accounts, paying recipients, using mobile money solutions like Geo Payments, transferring funds locally and cross-border, and buying airtime. Digital channels provide FNB Lesotho’s customers with an ‘on the go’ banking solution by removing the need for them to go into a branch.

Since its establishment in 2004, FNBL has continued to expand its brand and footprint in Lesotho. The Bank currently has three branches in Maseru as well as branches in Botha-Bothe, Maputsoe, and Mafeteng, and is installing ATMs countrywide to support its electronic strategy and bring banking closer to Basotho. FNB Lesotho’s future expansion plan is to have fully functional ATMs in all of Lesotho’s ten districts, as well as the new Slimline Mini ATMs which can be placed at merchants across the country.

The Bank has a Premier Client Suite as well as a Business and Commercial Suite based in Pioneer Mall, Maseru. These suites provide exceptional service in a professional banking environment, as well as an array of products to suit the needs of business, professional and premier customers.

Home Loans is another notable product which can be applied for at any FNBL branch. For the financing of vehicles and assets, including yellow goods and office equipment, WesBank offers Hire Purchase financing and is also located in the Pioneer Mall in Maseru.

FNBL remains focused on enhancing its electronic and digital delivery of banking services. It is committed to improving service delivery to all its clients, and will continue to introduce innovative products that make banking more accessible. In addition, FNBL has replaced the old magstripe cards with new Chip and Pin cards. This makes the card more secure by reducing the opportunity for card misuse as well as reducing the number of under the floor limit transactions.

Nedbank Lesotho www.nedbank.co.ls aspires to be the ‘best place to bank and invest’, and takes pride in offering excellent service to its clients through remaining attentive and responsive, and offering sound advice when it is needed. Clients are catered to through a variety of tailor-made banking solutions to address specific needs, with the range of personal and business banking products including: personal accounts; Internet banking; VIP banking; investment; vehicle finance; home loans; and small business services. The Bank’s expertise in business and property finance allows it to partner with clients and offer specialised financial advice resulting in business growth and success. Furthermore, Nedbank Lesotho has introduced specialist client services teams for business and corporate banking clients.

Nedbank Lesotho continues to increase its footprint by opening more ATMs and branches at strategic locations, thus bringing accessible and convenient banking to the people. Internet banking solutions include a new, user-friendly website that contains comprehensive information on the Bank’s products and services as well as contact numbers. In addition, the launch of the Nedbank debit card in 2014 has improved banking safety and convenience.

Known as a green and caring bank, Nedbank Lesotho strives to give back to the community and the environment. The Bank’s major corporate social investment and sponsorship activities include:

  • Nedbank Mohokare Golf Challenge – An annual golf event which has grown to become the country’s flagship tournament.
  • Lesotho Sky Cycling Tournament – An annual mountain biking tournament attracting cyclists from all over the world.
  • King’s Birthday – Nedbank contributes towards the King’s Royal Trust Fund in support of educating less fortunate Basotho children. 
  • Menkhoaneng Cultural Walk – Following a route from Menkhoaneng to Thaba-Bosiu, the walk commemorates King Moshoeshoe I, the founder of the Basotho nation.
  • Annual Budget Speech Gala Dinner – Hosted by Nedbank in collaboration with the Lesotho Revenue Authority to facilitate discussions around the budget speech and its potential impact on the country’s economy.

Nedbank Lesotho also invests in its staff, striving to create a constructive workplace and thus empower staff members to become and deliver their best. Internship programmes are offered to students from various institutions, providing a stepping stone to the world of work and helping them to develop a direction for their careers. The Bank’s phantom share scheme, known as Seshoai, paid out dividends to staff in 2014.


Nedbank Lesotho’s HQ and Branch in Maseru © Nedbank Lesotho

Standard Lesotho Bank www.standardlesothobank.co.ls is the largest bank in Lesotho in terms of assets and market share. It remains one of the most profitable franchises in the Standard Bank Group, which operates in 19 African countries and enjoys an enduring legacy of over 150 years of banking on the continent. As a point of differentiation, Standard Lesotho Bank subscribes to a customer value proposition that  commits to serve customers by providing products, services and solutions that suit their needs, all based on sound business principles.

Despite the slow economic recovery that negatively affected both borrowing and saving, Standard Lesotho Bank achieved a profit after tax of M292.4 million for the year ended December 2013. This achievement represents growth of 38 percent year on year, which translates to earnings per share of 1.418 cents. The Bank has increased its loan book from M2.5 billion in 2012 to M3.1 billion in 2013, representing lending to both the personal and business market segments, and clearly demonstrating its commitment to partnering with Basotho. As a committed and proud corporate citizen, Standard Lesotho Bank also directly invests more than M2 million in Basotho on an annual basis directly through various sponsorships and charitable causes.

Standard Lesotho Bank provides services to Government, parastatals, larger corporates, financial institutions and international counterparties. It serves its clients’ local and cross-border requirements for banking, finance, trading, investment, risk management and advisory services, specialising in infrastructure and natural resources. To date, Standard Lesotho Bank remains the only bank with a fully-fledged treasury offering a range of services including foreign exchange and letters of credit to investors and other international organisations.

The business of the bank has developed in line with the increasingly sophisticated financing requirements in Lesotho and sub-Saharan Africa, hand in hand with the globalisation of capital markets and rise of emerging markets as powerhouses of global economic growth. A combination of specialist product expertise and strong local capacity allows it to provide solutions that are fit-for-purpose and highly relevant. An understanding of financial systems at different levels of maturity and markets at different stages of development enables the Bank to provide tailor-made solutions and structured financing deals that have contributed immensely to Lesotho’s economy, especially in the fields of mining, engineering and construction.

A first in the history of banking in Lesotho, Standard Lesotho Bank’s Bundled Pricing is a new approach whereby clients enjoy a bundle of services on local ATM transactions, Internet banking, and new mobile banking, with Elite and Private banking clients paying only a combined monthly fee. Another first came at the beginning of November 2013, when the Bank launched a new lifestyle programme for customers. Known as Blue Sky, the programme is designed to offer customers a unique personal assistant, available 24 hours a day, seven days a week, resulting in unparalleled convenience and peace of mind. The Bank has once again raised the bar with a new service offering, the Customer Contact Centre (CCC), which is a high-end service management solution that meets clients’ incident and query management requirements beyond traditional operating hours.

Standard Lesotho Bank has been voted the ‘Best Retail Bank Lesotho 2014’ and ‘Best Corporate Bank Lesotho 2014’ by the London-based Global Banking and Finance Review in recognition of its continuing efforts to provide excellence in retail and corporate banking. The Bank’s Chief Executive, Mr Mpho Vumbukani, was also named ‘Best Banking CEO Lesotho 2014’.

The Lesotho PostBank (PostBank) www.lpb.co.ls is 100 percent owned by the Lesotho Government, and prides itself on being an indigenous bank that is wholly managed by Basotho. It was founded to provide banking services to under-banked and unbanked Basotho in both rural and urban areas, and remains committed to its mandate of answering the challenge of financial exclusion in the country.

Licensed by the Central Bank of Lesotho, the Lesotho PostBank was incorporated in 2004 and started its operations in 2005, offering savings and deposit taking services. In 2010 it diversified into lending and in 2013 introduced electronic transacting services. To date the PostBank has rolled out 13 branches, a customer service centre and 10 ATMs. It is also exploring other channels, such as point-of-sale (POS) devices which will increase its footprint in the country.

Since starting operations, the PostBank has attracted a substantial client base and has introduced additional products to address the diverse needs of its customers. While retaining the book-based savings account, it has also introduced debit cards for transacting business. Other newly-introduced products and services include, but are not limited to, the selling of airtime on ATMs and POSs, and local and regional bank transfers. In addition to the introduction of new products, the PostBank now segments its customers into retail and business, and offers products that suit those distinct portfolios.

NON-BANK FINANCIAL INSTITUTIONS

The non-bank financial sector comprises all non-bank institutions with the exception of those offering insurance and pensions. Institutions under the purview of CBL include money lenders, asset managers of Collective Investment Schemes (CIS), and Ancillary Financial Institutions (AFIs) comprising money transfer services, foreign exchange bureaux and credit only institutions (microfinance).

Financial services are still dominated by loan products designed for more traditional borrowers and offered by banks. The Financial Institutions Credit Only and Deposit-taking Micro-Finance Institutions Regulations of 2014 will help Lesotho strengthen non-banking financial institutions by providing an enabling legal framework where such institutions can offer products that are accessible, affordable and designed to meet the needs of micro-enterprises and low-income households.

In addition, the Financial Institutions Foreign Exchange Bureau Regulations of 2014, developed with regard to best practice principles, will provide minimum licensing requirements for the operation of foreign exchange bureaux. The regulations are further meant to assist the Government in ensuring that foreign exchange businesses observe appropriate anti-money laundering and financing of terrorism legislation.

During 2013, 154 money lenders were licensed while two new credit-only institutions were licensed and four had their licences renewed. Furthermore, 17 incorporated insurance brokers’ licences were renewed and six new insurance brokerage applications were received and licences issued, bringing the total number of licensed brokers in 2013 to 23. The year also saw six incorporated insurance companies’ licences renewed and two new licences issued. The first Credit Reference Bureau vendor was licensed to commence operations in June 2014.

Stanlib Lesotho is a world class investment business established in 2001 as a joint venture between Stanlib Asset Management (a South African based asset management company) and Standard Lesotho Bank Limited, to serve the investment and asset management needs of the Lesotho market. Stanlib Lesotho has recently moved into new premises at MGC Office Park, Maseru.

FINANCIAL ACCESS & INCLUSION

Financial inclusion and literacy are generally accepted as catalysts for financial education and stability in both developed and developing countries. The National Strategic Development Plan (NSDP) identifies financial inclusion, lack of access to credit and savings, and poor payment mechanisms from formal service providers as some of the main challenges in the financial sector.

The Government of the Kingdom of Lesotho, in collaboration with United Nations Capital Development Fund (UNCDF) and the United Nations Development Programme (UNDP), has also adopted inclusive finance as one of the effective tools for promoting access to financial services by the low-income population, vulnerable groups and micro-enterpises. The strategy targets the provision of quality financial services to the excluded population by focusing on sustainability, accessibility and affordability through, inter alia:

  • Facilitating and expanding the outreach of quality services by diverse providers
  • Increasing the financial and investment capacity of the private sector
  • Creating sustainable inclusive finance providers
  • Promoting innovations on inclusive finance
  • Supporting meso-level infrastructure

Two projects have been initiated to implement the strategy: Support for Financial Inclusion in Lesotho (SUFIL) and the Rural Financial Intermediation Programme (RUFIP). SUFIL is aimed at addressing macro, meso and micro level bottlenecks to inclusive finance while RUFIP is intended to facilitate access to financial services in the rural areas.

The massive growth in mobile phone use in Lesotho means that the financial services offered through the mobile phone networks are delivered cost-effectively to a wide population.

Mobile money
Mobile money is one initiative which has been implemented to overcome some of the barriers to financial inclusion through the application of new technologies. The mobile money transfer system, in the form of EcoCash and M-Pesa, has continued to gain momentum since its launch by the first of Lesotho’s mobile network operators in 2012. These innovations have allowed the rapid expansion of services to reach excluded populations, while simultaneously reducing the costs of service delivery.

Access to credit
Credit extension in Lesotho is historically very low. The Government has previously implemented reforms aimed at removing some of the supply-side constraints to accessing credit. These include the Legal Capacity of Married Persons Act (2006), which capacitated women to carry out business on their own, removing the need for spousal consent, and the Land Act (2010) and Land Administration Authority Act (2010), which streamlined and regularised registration of fixed property, enabling it to be used as collateral.

Present constraints have been attributed to the fact that banks are risk averse due to lack of sufficient information regarding the credit worthiness of borrowers. As a result, the extension of credit is concentrated in the hands of a few business borrowers and individuals, with little finance provided to medium, small and micro enterprises (MSMEs).

The CBL’s credit bureau project has seen the promulgation of the Data Protection Act (2011) and the Credit Reporting Act (2012). The latter makes provision for the licensing of private credit bureau operators and technical bureau services to assist financial institutions in lending money by establishing a credit information point on borrowers. The Credit Reporting Regulations gazetted in 2013 laid the foundation for the establishment of the credit bureau during 2014.

Set up in 2012 in collaboration with commercial banks and the Government of Lesotho, which contributed M50 million towards the fund, the Partial Credit Guarantee Scheme is administered by the Lesotho National Development Corporation (LNDC). The scheme supports the extension of credit to MSMEs, with local commercial banks receiving a 50 percent guarantee on behalf of qualifying local enterprises to access funding. Modifications to the policy guidelines enacted in January 2014 have seen the widening of the scheme to embrace a greater spectrum of sectors, as well as the removal of the lower limit of M200 000.00 to allow banks to lend even smaller amounts. This should increase uptake of the scheme by facilitating access for many local entrepreneurs who have hitherto been excluded.

Furthermore, with a view to removing problems associated with information asymmetry, which have throttled credit extension, Government has embarked on a civil registry overhaul programme that will culminate in the issuance of a national identity card for every Mosotho.

Financial literacy
For Basotho consumers to make the most of new and existing financial products and services, both financial literacy and financial capability are needed, as the lack of these assets currently forms a significant barrier to accessing and properly utilising financial services. Campaigns such as ‘Money Week’ endeavour to empower consumers with respect to financial products and services available, thus promoting a more robust and efficient financial system in Lesotho. ‘Make your money work for you: creating wealth through knowledge. Every cent counts.’ was the theme of the Money Week held during 2014.

Remarkable strides have been made by the Ministry of Finance in collaboration with major financial sector stakeholders towards the development of the National Financial Education Implementation Plan. The draft of this important document was being finalised by consultants during the second part of 2014. It will serve as a guide to, among others, integrating financial education into the school curriculum in collaboration with the National Curriculum Development Centre (NCDC) of the Ministry of Education and Training.

CONTRACTUAL SAVINGS

The contractual savings industry comprises pension and provident funds, insurance companies, medical aid schemes, collective investment schemes, and others. To effectively implement the Financial Institutions Act (2012), regulations for non-bank financial institutions have been developed, and a new Insurance Bill was approved by parliament in May 2014.

Insurance industry
The insurance industry in Lesotho deals with both long-term and short-term insurance. While the sector is fairly small, its penetration is relatively high and substantially above the African (excluding South Africa) average of 1.1 percent. This is mainly because of the popularity of funeral policies, which tend to be used by a much wider segment of the population.

Developed in line with international standards, the new Insurance Bill provides for the consolidation, administration, supervision, regulation, protection and development of the insurance business in Lesotho. It also ensures that the insurance industry meets the demands of the economy for risk-management and stimulation of growth in the investment sector. It is a major improvement over the previous Insurance Act, which dates back to 1975 and is marked by excessive rigidities.

Aon Lesotho www.aon.com is part of the international Aon Group – the largest risk services, HR consulting and re-insurance broking company in the world. Aon has been voted the world’s best in risk services. The company is also the largest and longest established insurance broker in Lesotho, giving it both knowledge and understanding of local insurance laws and regulatory requirements fundamental to giving good advice to clients on their risk issues. Aon is the broker of choice to many global companies and corporate companies in Lesotho. It also offers good service to personal lines insurance portfolios, including quality vehicle and funeral insurance cover to individuals.

Aon Lesotho is a dynamic and innovative insurance broking company that offers a range of services including expert risk management, life assurance and employee benefits consulting. Although part of an international company with vast resources at its disposal, Aon Lesotho aims to concentrate its efforts on fostering local economic growth, development and social responsibility.
 
Recruiting the best graduates from local universities, Aon takes them through extensive training which results in a highly skilled team able to deliver exceptional client value at all times. It is not a secret that most of the smaller insurance brokers in Lesotho are formed by ex-Aon employees. This shows that Aon develops and equips staff with entrepreneurial skills, thus developing the entire economy of the country. Many years of experience, together with highly qualified and well trained staff with access to Aon’s worldwide resources and expertise, allows Aon Lesotho to create specifically tailor-made risk solutions in all areas of its operation.

As the only locally owned composite insurer in Lesotho, Alliance Insurance Company www.alliance.co.ls celebrated 21 years of excellent service and remarkable growth in 2014. The company’s phenomenal success can be attributed to a number of factors, including a dedicated team of employees, excellent customer service, and a satisfied and rapidly growing client base, with branches in each of Lesotho’s ten districts. Alliance also provides innovative premium collection solutions to make it easier for clients to make payments, including mobile money options, stop orders, debit orders, PostBank, Standard Bank and cash payments. A wide array of products is offered to suit all clients. Furthermore, products are target market oriented and smart, taking into consideration the country’s socioeconomic conditions.

When it comes to Community Social Responsibility (CSR) programmes, Alliance Insurance’s contribution stands out from the rest. Many initiatives are sports related, with soccer kits having been donated to needy teams in various districts, thereby fostering a competitive spirit, promoting positive behaviour and helping to combat crime. Furthermore, Alliance is the only company in Lesotho that has partnerships with three premier league soccer teams, which are provided with sponsorship, soccer kits and other necessities. Particular reference is also made to the Alliance Squash Tournament, Lesotho Sky Cycling Race and Alliance Golf Day, amongst others. The Ministry of Education is assisted through support for career guidance initiatives countrywide and district excellence awards, as well as classroom renovations and the supply of agricultural equipment. In addition, regular donations of food and clothing are made to needy organisations and orphanages throughout the country.

Metropolitan Lesotho is a subsidiary company of MMI Holdings Limited, which is a company listed on the Johannesburg Stock Exchange with more than a century of life assurance experience. Metropolitan Lesotho represents a consolidation of previous business operations of Metropolitan Life in the Kingdom of Lesotho.

Metropolitan Lesotho was incorporated in Lesotho in 2003, with assets of M800 million, and had grown those assets to over M2.4 billion as at December 2012. The company employs 310 highly qualified and well trained staff. Although registered in 2003, Metropolitan has been operating in Lesotho for almost 46 years.

Metropolitan Lesotho is the first company in Lesotho to receive the Investors in People (IIP) award. ‘Investors in People’ is a business improvement tool designed to advance an organisation’s performance through management and development of their people; the framework is based on three main principles, which are Plan, Do and Review. Metropolitan Lesotho operates two streams of business, namely Retail and Corporate.

Corporate business solutions include employee benefits products such as retirement funds, group life assurance and disability cover, and health care insurance to assist companies in giving their staff access to the appropriate testing, monitoring and treatment. Workplace insurance services include visits to the client’s workplace, allowing staff to experience the services they enjoy in Metropolitan’s branches. Credit Life is life cover that provides for the repayment of the outstanding balance of credit facilities.

Retail business solutions encompass individual life and risk products such as Pension Provider, which allows provision to be made for retirement; My Future Provider, a savings vehicle to provide funds for educational purposes; Hospital Cash Back Plan, which ensures that other expenses are taken care of during hospitalisation; Multi Cash, providing investment benefits before the policy matures; and Thebe Life Cover, which is life cover with no medical tests and cash back every three years.

Client service offices for retail clients are situated in Maseru Head Office and the new Maseru Mall branch as well as Teyateyaneng, Leribe, Mafeteng and Quthing. The Maseru offices have been refurbished to improve the services offered, and clients are able to make inquiries, lodge death and funeral claims, maturity claims and refunds. A new premium payment system (Speed Point) has been installed for clients to help reduce the risk of having to carry large sums of money. All client service offices throughout Lesotho provide a full range of client services.

A new addition to the Metropolitan Lesotho family is the Bophelo Medical Scheme. Bophelo was established in 2004 to provide essential affordable healthcare to more people in Lesotho. It is a Lesotho-registered scheme and the accumulated funds are maintained in Lesotho and reinvested here. Bophelo is administered by Metropolitan Health Lesotho and is situated at the new Maseru Mall branch.

Thaba-Bosiu Risk Solutions www.thaba-bosiu.co.ls was established on 1 April 2006 when the original company, Thebe Insurance Brokers (Lesotho) (Pty) Ltd, transferred their control of business in Lesotho to local citizens. Advising and guiding both private and business clients in a variety of insurance-related matters, Thaba-Bosiu specialises in the management of exposure to risk. This entails first identifying the risks and then deciding, together, on the best course of action to eliminate, manage or transfer such risks. Arranging insurance or transferring the risk to an insurer is but one of the solutions to what can be a very complex question.

Thaba-Bosiu takes pride in the level of service provided, and employs local staff trained to be fully conversant with the wants and needs of clients in all aspects of financial services relative to the insurance industry. Considering the level of skill and expertise offered to clients, the company considers itself an integral part of the decision making process where risk management and the provision of solutions to handle exposure to risk are concerned.

The Over-the-Counter market provides an avenue through which growing companies can raise the capital needed to expand their operations.

Pension funds
The pension funds industry comprises private pension funds and the Government’s Public Officers’ Defined Contribution Pension Fund, with the industry’s assets comprising around 14 percent of GDP. Currently, the majority of these funds and schemes are managed in South Africa, a scenario which tends to break the link between savings and investment in Lesotho, and instead enhances investment and development in South Africa. A policy paper on Voluntary Occupational and Private Pensions was approved by Cabinet during 2013.


The beautiful garden behind the Public Officers’ Defined Contribution Pension Fund HQ © Anne Wade

The Public Officers’ Defined Contribution Pension Fund www.pensionfund.org.ls was established under the Public Officers’ Defined Contribution Pension Fund Act of 2008, following the reform of the pension system and Government’s decision to change from a defined benefit to a defined contribution scheme for civil servants. Both the Government and employees make annual contributions to the fund, which are then invested, and at retirement the pensioner receives a share of that fund plus interest based on their years of service. The fund is managed by a Board of Trustees that is appointed by the Minister of Finance and Development Planning in consultation with the Minister of the Public Service, according to section 6(2) of the Act.

MONEY & CAPITAL MARKETS

Developing money and capital markets has been a financial sector priority for more than two decades. In Lesotho, the domestic bond market commenced active operations following the issuance of medium and long-term tradable Government bonds. This began with the issue of Treasury bonds in 2010 with the objective of cultivating domestic sources of financing as a means of reducing the country’s vulnerability to external sources and financing the budget deficit, with the overall aim of developing the domestic capital market. Traditionally, when the market for Government securities flourishes, it magnifies the ability of the corporate securities market to prosper.

Following the successful implementation of a Treasury securities market, the CBL embarked on yet another important phase in its efforts to develop domestic capital markets – the drive to establish an organised market for trading stocks. The initial intention was to establish a fully-fledged stock exchange, but following consultations with various stakeholders and international development agencies it was decided to shift the approach to developing the stock market through the introduction of an Over-the-Counter (OTC) market, which is a market where stocks which are said not to meet the listing requirements of the major exchanges are traded.

An OTC market will provide another important avenue for companies to raise revenue for various reasons, including business expansion or diversification. Private enterprises will also have a platform to make public offerings of their shares to raise capital for their business needs in a more organised and regulated manner.The CBL is undertaking stakeholder awareness campaigns and putting in place measures to improve the market infrastructure and streamline the regulatory framework as a means of promoting transparency and fair dealing among market participants. The process of publishing a set of regulations to govern this type of securities trading is at an advanced stage.

TAXATION

The Lesotho Revenue Authority (LRA) was established in 2003 to enhance the efficiency and effectiveness of revenue collection and to provide an improved tax service to the public. Huge improvements have subsequently taken place in revenue collection as well as in raising voluntary compliance among taxpayers and creating a fair and equitable environment.

Milestones achieved by the LRA in the past decade include the introduction of Value Added Tax (VAT) at 14 percent, which has been instrumental in broadening the tax base, as well as the establishment of the self-assessment system. Advice centres for taxpayers have been set up in Maseru, Leribe and Mohale’s Hoek, and information is disseminated through radio programmes.

Tax rates
In order to improve Lesotho’s competitiveness in the region, the company tax rate was reduced from 35 to 25 percent in 2006, while the preferential tax rate of 15 percent enjoyed by manufacturing and farming was lowered to 10 percent. To promote textile manufacturing, Government introduced a zero tax rate on proceeds from exports destined outside SACU in 2006/07. This tax exemption was abolished in 2014/15 and replaced with the standard 10 percent rate as it was felt to be inconsistent with Lesotho’s commitment under international and regional agreements to remove very low tax rates as a step towards regional integration and to eliminate unfair competition that could arise from differentiated tax applicable to other domestic producers exporting within SACU.

Over the years, Lesotho’s effective tax rate on personal incomes has remained one of the highest in Sub-Saharan Africa. To reduce the tax burden and encourage tax compliance, the 2014/15 budget proposed reducing both the lower and upper personal income tax rates, from 22 to 20 percent and 35 to 30 percent, respectively. The Income Tax (Amendment) Act No. 2 of 2014, contained under Government Gazette No. 33 of 13 June 2014, has been duly enacted and published. This is applicable for resident individuals, sole traders and employees under the pay-as-you-earn (PAYE) system.

Where chargeable income is between M1.00 and M51 670.00, tax will equal 20 percent of the amount; and where chargeable income exceeds M51 670.00, the tax will be M10 334.00 plus 30 percent of the amount exceeding M51 670.00. There is a non-refundable tax credit of M6 100.00 per annum. While this will give back an estimated M271.0 million to tax payers, it is also expected that the additional consumption emanating from increased incomes will see VAT increasing by M80.9 million.

Best practice as regards VAT dictates that a single rate be used to avoid distortions, ensure tax efficiency and reduce administration and compliance costs. As a result, Lesotho’s four VAT rates (zero on mainly essential and basic items, 5 percent on telecommunication and electricity, 15 percent on alcoholic and tobacco products, and a standard rate of 14 percent) have been simplified. It was announced in the 2014/15 budget that all items, with the exception of the zero-rated items, electricity and telecommunications, will now be taxed at the standard rate of 14 percent. At the same time, an additional levy of 4 percent has been added to alcohol and tobacco products to curb abuse of these substances.

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