India: Three Equity Firms to Pick up 15% in BSFL

Apr 2010
Mumbai, India, April, 04 2010 - Three venture capital investors will buy a stake of around 15% in Bhartiya Samruddhi Finance Ltd (BSFL), a microfinance institution (MFI) that lends small amounts to poor customers who are unable to borrow from banks, two bankers familiar with the development said.

Matrix Pvt. Equity Partners Llc from the UK, the Netherlands’ Triodos Bank NV and Delhi-based Lok Capital will buy the BSFL stake for Rs102 crore (USD 22.9 million), the bankers said.

Matrix, which manages £120 million (Rs816 crore), is a new investor in the MFI. Lok Capital and Triodos Bank have been investors in BSFL for almost nine years. The MFI’s roster of investors includes International Finance Corp., Washington, ShoreCap International and domestic lenders ICICI Bank Ltd and Housing Development Finance Corp. Ltd (HDFC).

The fresh equity capital will allow the MFI to raise Rs500 crore of debt, said one of the bankers quoted above, who did not want to be named.

MFIs, by the nature of their profile, are allowed to raise debt from banks and financial institutions, said Vineet Rai, founder of Intellectual Capital Advisory Services, an investment bank that serves MFIs.

Rai also runs the $40 million private equity fund Aavishkaar Goodwell India Microfinance Development Co. Ltd. In April 2009 Aavishkaar, along with Lok Capital and Small Scale Industrial Development Bank of India, invested nearly $12 million (Rs54.12 crore) for a 11% stake in BSFL. “The fresh investment will pare down our stake to 7-8%” he said.

BSFL’s chief executive Sajeev Viswanathan declined to comment. “We will make an announcement on Monday,” he said.

Vijay Mahajan, a management graduate, founded Bharatiya Samruddhi Investments and Consulting Services Ltd, or BASICS—the holding company of BSFL—in 1996. Mahajan started the business with a grant from the Ford Foundation and remains its chairman—but he does not own any shares in it.

SKS Micro Finance, the country’s largest MFI, sought regulatory approval on 27 March to raise money from the public and existing investors through an equity issue.

BSFL has at least 1.5 million customers across 16 states, of which 90% are rural poor households and the rest are slum dwellers.

It reported a net profit of Rs86 crore for the fiscal ended 31 March 2009, after disbursing Rs586.45 crore in the same year.

Only Rs20,000 crore, or less than a tenth of the required Rs2.4 trillion credit is available to India’s poor, according to the finance minstry.

Two in five Indians do not have a bank account, and 81% of villages do not have a bank within 2km.

Although the microfinance industry is growing fast, not every MFI is profitable. One out of three MFIs in India suffered losses in the 2009 fiscal, said a study of around 230 lenders conducted by ACCESS Development Services, a non-profit organization that offers consultancy to MFIs. The study also showed that a high 42% of small MFIs, or those who have a loan portfolio of up to Rs5 crore, posted losses.

MFIs recovered 99% of their loans in the 2009 fiscal, according to the report, which is way above the recovery rate of commercial banks. But the scene may change as “unbridled expansion tactics” and competition result in lenders offering more loans than borrowers could service. This, in turn, leads to delinquency, said the ACCESS report

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