Chamwe Kaira
The implementation of payroll deduction system (PDMS) reforms in the 2024 financial year will significantly change the earnings profile of Entrepo Finance, Capricorn Group’s micro-lending subsidiary.
Entrepo has been one of the group’s most profitable businesses, delivering high net margins and returns on equity well above the group average.
Although it represents only about 4% of the loan book, it has contributed roughly 11% of the group’s net profit.
“With the reforms now in place, we see new lending growth at Entrepo as effectively halted. While the existing book will continue to generate income, its top-line contribution will gradually diminish, and the structural driver of incremental earnings has ended,” said analyst Lamberto Ferrero on Monday.
Entrepo Finance has filed a lawsuit against the government in the High Court to stop the planned discontinuation of the government’s payroll deduction management system.
Ferrero said the change represents a material challenge for Capricorn Group going forward.
“Without Entrepo’s extraordinary profitability, sustaining a group Return on Equity at current levels of 18% and maintaining Net Interest Margins above 5% will be significantly more challenging. We therefore expect a greater reliance on cost discipline, balance-sheet optimisation, and diversification into other segments to defend returns in what has become a slower-growth, lower-margin environment,” he said.
Capricorn Group delivered a strong 2025 financial year, recording profit growth of 15% year-on-year to N$1.99 billion and a return on equity of 18.2%.
The results were supported by margin expansion, diversified non-interest income, and tight cost control.
Simonis Storm Securities said the group has now reached a strategic turning point.
The implementation of deduction code reforms has altered the earnings structure of Entrepo. With new lending halted and existing loans expected to amortise over one to five years, the company’s high-margin income will fade, putting pressure on group returns and interest margins.
“Without an immediate replacement, sustaining returns above 18% will prove challenging,” the firm said.
Management has turned to diversification, with asset management, insurance, and digital platforms now showing double-digit growth and providing a more stable income stream.
Over N$500 million has been invested in digitalisation to improve efficiency and client engagement. The country’s oil, gas, and green hydrogen developments are also expected to boost future corporate activity, supply-chain financing, and fee income.
Ferrero said these investments will take time to generate earnings and do not match the profitability of Entrepo in the short term. He noted that Botswana’s weak economy has already affected loan growth and asset quality, while compliance costs across the financial sector continue to rise.
“Domestically, household demand is softening, limiting lending momentum. Together, these factors suggest that Capricorn’s growth trajectory will shift from the clear expansion of recent years to one of constraint management and incremental diversification,” Ferrero said.
Caption
Entrepo Finance has sued the government in the High Court to stop plans to discontinue the payroll deduction management system.
- Photo: Ministry of Justice
