SDC Finance Limited is a Finance House licensed and regulated by the Bank of Ghana. Prior to 2008, it had operated for 17 years as a Discount House under the trading name Securities Discount Company Limited (SDC).
The company’s shareholders are:
- Trans Africa Holding (TAH) Limited
- Ecobank Ghana Limited
- CAL Bank Limited
- Agric Development Bank Limited
- National Investment Bank Limited
- Ghana Commercial Bank Limited
- Pryor, Counts & CO
- United Africa Trust (Pension Fund)
- Equitorial Holdings Limited
- InterAfrique Holdings Limited
- Individual Ghanaian Investors
Based on a strategy to create a Group Structure at the time, these shareholders formed a Holding Company, SDC Holdings Limited to which they transferred their shares and made it the sole shareholder of SDC Finance in 2014. Following the passage of a new Banking Act in 2016, Act 930 which imposed restrictions on the scope of businesses a Financial Holding Company could do, the diversification strategy that informed the Group concept became untenable. The shareholders subsequently resolved to disband the Group Structure and restored the shareholding of SDC Finance Limited to the above original shareholders.
When the company converted from a Discount House into a Finance House in 2008, its main asset product was to give business loans to local SMEs. This involved taking risks on the general cashflows of these SME customers. By 2010 the company got trapped in high NPLs resulting from mass repayment failures of these customers. The company responded by changing its asset creation model from taking risks on the uncertain cashflows of SMEs to financing specific transactions that are executed by our customers and paid for by the government of Ghana. In doing so, we deploy a financing structure that gives us direct control over the payments from government, a situation which ends the company up with taking the payments risks of the government of Ghana, which is an assured repayment source.
The company has since been financing customers who construct roads and build classroom blocks for the government. We do so by discounting Interim Payment Certificates (IPCs) generated by the contractors on these projects and to a lesser extent by advancing pre-finance loans that are used by the contractors to execute the projects and raise IPCs that are pledged to us. The company uses a financing structure which ensures that it has direct control over the payments made by government for the IPCs. The proceeds are then used to settle the customer loan balances. The company has since 2012 financed the construction and maintenance of over 2,000 km of roads and 100 classroom blocks across the length and breadth of the country.
These assets are funded from the proceeds of Fixed Deposits that are raised from both institutional and individual customers interested in investing in safe fixed income instruments. The panic withdrawals that was associated with the financial sector clean up by Bank of Ghana from 2017 to 2019 have stress-tested the resilience level of all Specialized Deposit taking Institutions (SDIs) made up of Finance Houses and Savings & Loans companies. SDC Finance Limited passed this stress test with distinction by successfully honoring all the withdrawal requests of its Fixed Deposit customers on demand (both pre-mature and matured terminations) without any incident of rescheduling. This was a rare feat in those times which underscored the company’s accolade as the safe investment haven in the SDI market.
In summary we take fixed deposits from the Investing Public for which we offer safe and competitive returns and use the proceeds to fund specific transactions for customers who render services to the government of Ghana. These transactions create debt instruments that are settled by the government of Ghana. The loans are structured such that the government’s settlement proceeds are paid into accounts over which SDC Finance has direct control. There is therefore an assured source of settlement of the loans we make to our customers. This business model plus a prudent liquidity management regime, deliver assured returns to our fixed deposit customers and fair levels of profitability for the company.
The company has also built a small portfolio of personal loans up to the year 2019. We are building on the experience in 2020 to develop the personal loan to become a significant part of our loan book. Given that our core model is to avoid taking open ended credit risks and rather focus on taking government payment risks, we are targeting workers on government payroll for this product. This involves lending to government employees under a structure where government makes the loan deductions and pay directly to us on behalf of the customers. This ensures that the repayments are made regularly every month, a situation which will make our inflows more robust and even strengthen the liquidity position of the company.