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BlueOrchard Invests Rs 4.5Cr in Mumbai-based Svasti Microfinance

10 May, 2011

Even though microfinance in India is in turmoil, the private capital is still flowing into the sector. Svasti Microfinance Pvt Ltd, a Mumbai-based microfinance company, has raised its second round of funding of Rs 4.5 crore from Switzerland-based BlueOrchard Private Equity Fund. The investment has been made by a Mauritius based arm of BlueOrchard.

The funds will be used by Svasti to expand its branch operations and to develop innovative loan products to service the entrepreneurial low income population in Mumbai, a statement said.

Grameen Capital India acted as exclusive advisor to Svasti on this transaction.

Svasti was founded in 2008 by P Arunkumar and B Narayanan with support from the Michael & Susan Dell Foundation and Kotak Mahindra Investments Ltd (a subsidiary of Kotak Mahindra Bank). In September 2010, the company was converted into a non-banking finance company when it raised its first round of funding of Rs 5.45 crore from several investors including a few members of the Mumbai Angels, a group of angel investors.

The company today manages a loan portfolio of around Rs. 5.39 crore, servicing around 8,500 clients from its six branches across the city.

Sarah Djari, Senior Investment Manager Asia, BlueOrchard Private Equity Fund, said: “This investment is BlueOrchard’s second direct participation in the Indian microfinance sector, and allows our fund to support an innovative business model in the urban slums of Mumbai. I am personally very excited to partner with Svasti for its next development phase and much looking forward to collaborate with its management and existing shareholders.”

In its another direct investment, the microfinance focussed fund had earlier invested into Asmitha Microfinance. It has also invested in Aavishkaar Goodwell fund, an asset manager that invests in MFIs. BlueOrchard currently manages $900M in debt and $195M in equity.

B Narayanan, Co-Founder and Director, Svasti, said “BlueOrchard’s investment in the current environment where microfinance in India is going through a rough patch is a ratification not just of Svasti’s operational strengths and its capability, but also the robustness of the microfinance business model when fundamental principles are adhered to.”

On Svasti’s board are Sarah Djari, Senior Investment Manager Asia, BlueOrchard Private Equity Fund, Srikrishna K Ramamoorthy, Grant Officer, the Michael & Susan Dell Foundation, and Rajiv Dadlani from the Mumbai Angels.

Following the Andhra Pradesh ordinance which restricts the interests that MFIs can charge from borrowers and the resultant credit squeeze, the microfinance sector has been facing severe liquidity crunch. Also the defaults have gone up. SKS Microfinance, the largest MFI in India, recently registered net losses of Rs 69 crore in Q4 of 2010-2011 indicating not all is well with the sector.

However, optimists like Dia Vikas, a microfinance funding firm, recently re-upped allocations in three of its partner MFIs – BWDA Finance Ltd (BFL), one of the major MFIs based in Tamil Nadu, north-east-based Rashtriya Grameen Vikas Nidhi and ESAF Microfinance.

 


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BlueOrchard Invests Rs 4.5Cr in Mumbai-based Svasti Microfinance

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