sks Micro announces Rs 50 cr equity infusion

MUMBAI: Microfinance institutions (MFIs) have finally begun looking beyond banks for their credit requirements. Hyderabad-based SKS Microfinance, on Thursday, announced an equity infusion of Rs 50 crore by private venture capital fund Sequoia Capital alongwith other investors such as Unitus Equity Fund, Vinod Khosla, Ravi Reddy and Odyssey Capital.

The MFI, promoted by Vikram Akula, is also plannning for another round of equity infusion in the next six months to raise another Rs 100 crore with a similar set of investors. This apart, SKS Microfinance is also looking at securitising assets to the tune of Rs 100 crore in the coming fiscal, while it may examine the possibility of hitting the markets with a bond issue in 2008.

The current round of equity infusion would take the net worth of the institution to around Rs 70-75 crore. SKS has a client base of 6 lakh women borrowers, located across 7,200 villages in 11 states. The infusion of Rs 50 crore will help the MFI serve another 5 lakh borrowers apart from giving it the leeway to raise additional capital. SKS charges an average interest rate of 25%, with cost of borrowing itself taking up nearly 11.5%, keeping a 2% profit margin in mind.

Mr Akula pointed out that the total demand for funds in the microfinance space would be around $50 billion. Of this, all microfinance institutions put together have managed to lend only up to $5 billon so far in India.

As per SKS’s lending model, only women borrowers are eligible for loans, but on an individual basis. The cost of funds has risen by around 75 basis points since the past two months from 10.25% to around 11%, given the rising interest rates experienced in the system. Keeping in mind the growth in the lending portfolio, Mr Akula said that MFI will require at least Rs 500 crore over the next three years.

SKS is also in the process of distributing smart cards to its borrowers in order to make it easier to handle movement of cash. It has worked out an arrangement with Visa, which has installed wireless point-of-sale terminals at merchant outlets. SKS is currently exaiming the possobility of roping in non-governmental organisations to accept deposits from borrowers through the smart card.