Micro fin cos cosy up to global funds

MUMBAI: After SMEs, broking firms and NBFCs, it’s now the turn of local microfinance institutions (MFIs) to attract global investors. Legatum, a privately-owned international investment firm based in the UAE, has announced an investment of $25 million in Share Microfin, the country’s largest MFI. This is the largest investment made by an overseas investor in a microfinance institution, both in India and globally, too. Barely a month ago, Sequoia Capital, a foreign venture capital fund, had infused $10 million into Vikram Akula’s SKS Microfinance.

This investment through Legatum Global Development gives it a majority stake in Share Microfin. Apart from this, the MFI has also secured an investment of $2 million from Avishkar Goodwell, a company which invests in entrepreneurial microfinance organisations in India. The MFI is also in talks with Vinod Khosla, a venture capitalist, based in Silicon Valley, to raise further capital.

Legatum Capital, a firm owned by Christopher Chandler, has investments of over $1 billion in the Indian stock market. Most of these investments are in the financial sector. It has stakes in ICICI Bank, HDFC, HDFC Bank, UTI Bank, and others. New Zealand-based Chandler brothers Richard and Christopher, through their firm Soveriegn Global, had started investing in India in 2005. However, last year, both the brothers split.

Unlike some of the other institutions, Legatum’s investment in the MFI space is not a part of its philanthrophic efforts. Mark Stoleson, Legatum’s president explained, “This is not a CSR or corporate philanthropy. Microfinance in India is at an inflexion point. So far, it has been dominated by NGOs and charitable trusts. But, in order to have a sustainable model, all through the country, it is extremely important to have a for-profit model, which brings in both scale and efficiency and delivers tremendous social returns. We are looking at a sustainable and scaleable model.“

Other than its investments through the stock market, it has invested around $30 million through Legatum Global, $25 million of which is in Share Microfin. Its other investments include FINO, a technology-provider set up by ICICI Bank, and another entity called ALittle World.

The new investments, put together, would take Share Microfin’s equity base to Rs 112 crore. The MFI, which is currently present in five states, plans to expand operations in Uttar Pradesh, Rajasthan, Haryana, Uttraranchal, West Bengal, Gujarat and Jharkhand. The MFI currently offers products such as general and seasonal loans, loans to build sanitation facilities, housing finance, etc.

Udaia Kumar, Share Microfin’s CMD, said, “The MFI will now roll out agricultural loans, working capital loans and loans against warehouse receipts. The increased asset base will give us the capacity to bargain with banks, for loans carrying a lower rate of interest. We plan to raise more funds by issuing bonds this year, and bring out a public issue within the next three years.”

The IPO would help the firm bring down the cost of capital. Microfin has around 1 million clients, living in 8,000 villages and has an outstanding loan portfolio of $95 million. It is targeting a loan portfolio of $600 million, with 6 million clients and 1,720 branches and 12,000 staff by 2012.

Overseas players who have made significant investments in the domestic microfinance space include FMO, a Dutch institution, Netherlands-based Tridos, the World Bank arm, International Finance Corporation, US-based Accion, KfW from Germany and UK-based CDC. Prior to the Legatum deal, about $50-60 million was allocated by these institutions. Of this, around $25 million has been invested, including the Sequoia investment in SKS.