Leapfrog invests $29 million in IFMR Capital Finance

Madhav Chanchani

MUMBAI: US-based Leapfrog Investment has bought a minority stake in financial services provider IFMR Capital Finance for $29 million (Rs 174 crore).


IFMR helps microfinance firms, small businesses, affordable housing companies and commercial vehicle financiers raise money on the debt markets.

The non-banking finance company raises debt financing for these companies in these segments through a variety of instruments, including securitisation, collateralised debt obligations (CDOs) and loan guarantees which are then traded on debt capital markets.

“We act as a bridge between high quality debt issuers in the financial inclusion space and capital markets," said Kshama Fernandes, chief executive officer of IFMR Capital, which was founded in 2008 and has executed about 150 transactions. The company has been promoted by IFMR Trust, which will remain the majority shareholder after the deal.

"We understand these sectors, do our due diligence and take exposure to the subordinated tranche of loans which gives comfort to capital market entities to invest with us,” said Fernandes who was earlier the company’s chief risk officer.

The company has raised debt for microfinance companies like Equitas, Janalakshmi and Ujjivan as well as small business lenders like AU Financiers and Vistaar Financial Services.

The company closed fiscal 2013 with by doubling profit after tax to Rs 7 crore and total income to Rs 44 crore. The balance sheet of the company is currently at Rs 500 crore, according to Fernandes.

For Leapfrog, which invests in emerging markets in Africa and Asia, this is the third investment in India. It had earlier backed insurance distribution firm Mahindra Insurance Brokers, a subsidiary of Mahindra & Mahindra Financial Services and Shriram CCL, a subsidiary of Shriram Capital.

Both Leapfrog and IFMR did not disclose the valuation of the company or the stake acquired “Typically, we tend to look at price to book value multiple in these transaction. Given that this is a young company, we were encouraging the investors value it based on growth potential," said Sanjay Bhandarkar, head of Rothschild India, who advised IFMR on the transaction.

IFMR Capital Finance will use the funds raised from Leapfrog to expand into other segments like agriculture and capital market access to SMEs, besides going deeper into its existing segments.

According to its FY13 Annual Report, the total microfinance securitisation market was around Rs 2,700 crore Rs 3,300 crore of which Rs 1,300 crore was structured and placed by IFMR Capital. Funding through securitisation became a major source for microfinance firms after Andhra crisis of 2010.