Few words strike fear into the hearts of investors more than “decrease” or “loss”. Almost always, it means some level of disaster has struck and they are about to pay for it in one way or another. For shareholders in microlender Finbond, the half-year results to end-August prove this truism.
Earnings decreased by 84.9% to 1.7c a share compared with the 11c reported for the prior period. Headline earnings dropped by more than 100% to a loss of 5.9c per share compared to a profit of 1.1c per share a year earlier. As a result, the board did not declare an interim dividend.
Finbond, which has operations in South Africa and the US, has been stumbling along for some time, but this is a serious crash. Founded in 2003 by CEO Willem van Aardt, it listed in 2007; at its peak in 2018, its shares traded around 600c. Today, it is trading around 47c.
Van Aardt says these startling losses are a result of the “difficult South African credit environment” in which consumer credit risk increased and credit loss ratios rose at most major banks. This directly impacted Finbond Mutual Bank, which recorded higher impairments. On top of this, he notes, “the timing of the group’s expansion of more than 140 branches in South Africa over the past three years amplified this impact”.
But the issues don’t end there. Small-cap analyst Ryan Shane says: “It had been technically loss-making for the past few years.” In his view, many of these losses have been the result of Finbond “building up a big customer book in the US, and as the rand strengthened, it would have had to revalue that downward”.
Himself an investor in Finbond, Shane says that aside from the currency issues and credit environment, “things haven’t been fantastic” for the company in recent years.
He took an initial interest in the company as it was trading at a large discount to its book value, “at the time being 150c a share, and it was trading at 30c a share”. He is not too fazed by the latest results but understands why other shareholders would be up in arms. Some aspects of the loss, such as the exchange losses, were out of the company’s control, he says, and can be recovered when the environment changes.
But this isn’t the end of Finbond’s woes. Shane says the company “collapsed after Covid, and then pivoted into microlending in the US, which was very expensive”. The Covid effect was particularly pronounced in the US: demand for short-term credit was slow to recover as government stimulus measures temporarily boosted consumer savings. This acted as a drag on business.
Van Aardt counters that the business only struggled “due to regulatory change in Illinois in 2021, which capped interest rates and required Finbond to replace a large part of its business in North America.” Today, he insists, “Finbond’s North American operations remain strong cash generators”.
Not everyone is convinced. Shane says Finbond has had a lot of problems in the US, and “no matter how well the operations [improve] in America, the fair value loss on the customer book would wipe out any progress”.
But Van Aardt says there are no plans to exit the US.
“Finbond’s dollar-based business is a strategic asset and a natural hedge against rand weakness and domestic economic volatility. The rand can strengthen against the dollar for periods, as it has recently, but over the long term it has weakened steadily.”
Another strategic play has been Finbond’s dividend scheme, which has likely kept anxious investors pacified in recent times. The company has historically declared a dividend even if it has not necessarily been able to afford it. In the year ended February 28 2025, Finbond paid a dividend of 9.57c a share despite reporting only 7c a share in basic earnings and a headline loss of 1.9c a share. On basic earnings, it paid out roughly 137% of earnings.
Shane says this was done via the declaration of scrip dividends, an arrangement where a company offers investors the choice to receive their dividend payment in the form of additional shares instead of cash.
So Finbond could declare a dividend “knowing it doesn’t have to pay out 100% of that dividend in cash”. Shane says the company “had a high degree of confidence that 70%–80% of shareholders would have taken it up in shares”, as he did.
The decision not to pay any dividends this year then clearly illustrates the dire state of affairs. Even though its historical payout strategy was not well supported by earnings, it still looked fairly doable in the financial results. Now, though, the company is in desperate need to conserve capital while its lending operations face higher credit risk.
With earnings taking such a knock, it would seem sensible for the company to do everything in its power to boost revenue. However, executive remuneration seems to be an area where it is reluctant to budge. This is a bone of contention for some investors.
“If the shareholders are losing their capital holding a stock that’s going down while the CEO is earning a fifth or a sixth of its market cap every year, that’s not a great look,” says Shane. Finbond’s market cap is about R300m — and Van Aardt received a hefty R51m remuneration package in financial 2026. Profit was R69.4m.
“It’s totally inconsistent with what companies generally pay themselves, and given that the performance hasn’t been like Shoprite’s or Capitec’s, it really doesn’t look great,” Shane says.
But it seems that not all shareholders share his concern — the remuneration proposal and implementation report resolutions passed with 99.9% in favour at the AGM on October 23. It’s noteworthy that Van Aardt and non-executive director Sean Riskowitz own about 68% of all Finbond shares.
Questioned on the remuneration figure, Van Aardt argues that “executive remuneration is regularly benchmarked by the remuneration committee using independent expert analysis to ensure alignment with market practices”.
PwC’s latest Director Remuneration and Trends report notes that the median remuneration package for CEOs of the JSE top 200 was R23.1m, a far cry from Finbond’s hefty pay cheque.
Meanwhile, Van Aardt acknowledges that “subdued results are expected to continue in the short term”, but argues that “Finbond’s extensive branch network, loan book growth, increased customer numbers, expanded long-term funding base, conservative risk management practices and strong cash flow provide the group with a solid platform for medium- and long-term growth”.
This all might turn out to be true — or it could crash and burn. Shane says he won’t be buying more Finbond shares any time soon, but he isn’t ready to bail out the company just yet. For now, it seems that the best thing to do is to sit tight and brace for impact.
