Kerala-based Hope Microcredit Finance Ltd. has raised Rs 10 crore from in what will be the first (disclosed) private equity investment in the Indian microfinance sector after the crisis started in Andhra Pradesh.
The funding, raised from Belgian investment firm Incofin Investment Management's Rural Impulse Fund II, will be the first deal in the sector since August this year.
Hope Microcredit, which started as an NGO in August 2005 and then registered as a Non-Banking Financial Company (NBFC), started its microfinance operations in April 2010. Since then it has built up a base of 80,187 clients across of 42 branches with a loan book of Rs 25.94 crore or $5.8 million. The company, headquartered in Palakkad district, has operations in the state and bordering districts of Tamil Nadu besides the Andaman Islands.
The last deal in the MFI sector was announced on August 31, 2010, when Pune-based Suryoday Microfinance raised Rs 21 crore from Lok Capital and Aavishkaar Goodwell, according to VCCEdge.
"We are overall optimistic on the growth of this sector. The regulatory issues Indian microfinance is facing are very natural in the growth of sector. We have been saying for the past nine months that this is bound to happen and therefore have not invested in any of the larger MFIs and backed MFIs who have focused primarily on rural areas," said Aditya Bhandari, Private Equity Expert at Incofin, who looks after the India portfolio. He says that being an international fund Incofin has seen such issues coming up in markets like Bosnia.
The deal would be the fourth investment of Incofin in India. The firm has focused on MFIs with a rural focus with its most recent investment was Rs 4.5 crore in Fusion Microfinance, a start-up with operations in Uttrakhand, New Delhi, Madhya Pradesh and Uttar Pradesh. Other investments include Rs 10 crore in Karnataka-based Grameen Koota and a 34% stake in North-East based Asomi Finance.
Incofin is currently raising Rural Impulse Fund II, which is targeting a final close of Euro 120 million (approx $158 million) soon. The fund made a first close of Euro 86 million (approx $113 million) in June this year.
“In addition to the well established social value that Hope Microcredit has developed via various development programs, the parties have agreed to a meticulous implementation of best practices in the area of transparency and client protection. It is our firm belief that this way of doing microfinance business represents the right way to achieve social goals and will at the same time generate fair investment returns”, says Geert Peetermans, Chief Investment Officer of Incofin Investment Management.
Indian MFIs have raised more than $450 million across 66 deals from private equity investors since 2006, according to VCCEdge. But the AP Ordinance, which besides putting restrictions on activities of MFIs has also sought barring them from raising funds PEs and capital markets, put a stop to investment activity. Most of the large MFIs are like SKS Microfinance, Spandana Spoorthy, Share Microfin are headquartered in Andhra Pradesh.
In this backdrop equity funding and loans from banks have dried up for the sector though some positive news has been coming in the last few days. Grameen Foundation and its affiliates, Grameen Capital India and Grameen-Jameel Microfinance Ltd., announced guarantee funding for Indian MFIs. The facility of $8 million could be expanded to $16 million. Also, an Economic Times report said that banks are expected to meet Reserve Bank of India to resume consortium based lending to the sector which will diversify risks.