Microfinance is yet to lose its sheen from an investment point of view. Setting the bubble view aside and reaffirming the investor faith in the space, CLSA Capital Partners has invested $24 million for a minority stake in the form of fresh issue of shares in Chennai-based microfinance institution Equitas Micro Finance India.
The investment was done through ARIA Investment Partners III LP, one of the funds managed by CLSA Capital Partners, the alternative investment arm of CLSA Asia Pacific Markets. The deal was closed on March 27.
There has been a widespread belief that the valuations in MFI space have been heating up while the business is facing various challenges in India. The MFIs are meant to replace the high cost loan providers like money lenders in rural India, however the reality has been money lenders are still thriving even in an hyperactive MFI area.
Equitas is formed in 2007 by P.N. Vasudevan, who has over 20 years of experience in the traditional banking industry working with Cholamandalam Investment & Finance Co Ltd and Development Credit Bank. It has a loan portfolio of nearly $130 million (Rs 598 crore) and serves over 900,000 customers from around 150 branches in Tamil Nadu, Andhra Pradesh and Maharashtra. Equitas plans to use the capital to expand its branch network in other parts of the country.
Equitas has several external backers. In January 2010, Sequoia Capital bought 10% stake held by Kalpathi Investments for Rs 44 crore, which was first reported by VCCircle. Prior to that, in 2008, the MFI had seen $12.5 million investment from Bellwether Microfinance Fund, Indian Financial Inclusion Fund and MVA Ventures.
This is the ninth investment in India by Aria Investment Group and the third by the particular fund. Aria Investment Partners III had raised $333 million last month. Aria's existing portfolio in India includes power equipment supplier Apar Industries, cylinder maker Everest Kanto Cylinder Ltd, inverter maker Luminous Power Technologies Ltd, earth moving machinery maker Sanghi Movers and beauty chain VLCC Healthcare Ltd.
Another leading MFI SKS Microfinance recently filed for an IPO. SKS is promoted by Sequoia Capital India and Sandstone Capital.