IFC to lend $10M each to Ujjivan and Equitas through ECB route

International Finance Corporation (IFC), the private sector investment arm of World Bank, proposes to make a senior debt investment of up to $10 million through the external commercial borrowings (ECB) route in two microfinance institutions (MFIs) based in southern India. 

Both the MFIs, Chennai-based Equitas Micro Finance Pvt Ltd and Bangalore-based Ujjivan Financial Services Pvt Ltd, have a customer base of over a million and will be among the first few in the microfinance space to tap the ECB market, which is gaining importance as a source of long-tenor funding. 

With the $10 million debt funding from IFC, Equitas plans to expand its reach to several poorer states in India, where the company plans to scale up over the next few years. At present, it has operations in five states – namely, Tamil Nadu (including Pondicherry), Maharashtra, Rajasthan, Gujarat and Madhya Pradesh. 

The MFI has a borrower base of 1.3 million across five states and one union territory, with a loan portfolio equivalent to $215 million. 

Equitas was founded by PN Vasudevan who had been involved in consumer financing for more than 20 years in Cholamandalam Finance where he was a vice-president and the business head. The MFI is a 100 per cent subsidiary of Equitas Holdings, which is an existing investee of IFC. 

Ujjivan, which operates through 301 branches across 20 Indian states, plans to expand to northern and eastern parts, which have the highest population densities and poverty rates in the country. It is one of the few large MFIs that focus on providing micro loans to women borrowers in urban and semi-urban areas. Today, Ujjivan has around 1.1 million members and a loan portfolio of around $206 million. 

Ujjivan was founded by Samit Ghosh who had been an international banker for over 30 years and was part of the team that launched consumer banking in India at Citibank in 1985. Other shareholders in the MFI include IFC, AW Holdings, Women’s World Banking, India Financial Inclusion Fund, Unitus, Elevar, Sequoia Capital, Lok Capital Group, FMO and Wolfensohn Capital Partners. 

IFC’s continued investment in the sector is expected to build confidence in the MFI space post the regulatory shocks in the key market of Andhra Pradesh. 

“IFC’s investment would underline the faith in the sustainability of the microfinance business post the changed regulatory environment, in addition to building investor confidence in the low-income states towards provision of financial services to the BoP,” IFC stated. 

IFC’s investment aims to help the firms diversify their funding sources with a new debt category (ECB) and potentially attract a new set of investors in the future. IFC’s debt will be for a longer tenor (more than 5 years), which will enable the MFIs to manage their ALM more efficiently.

(Edited by Sanghamitra Mandal)

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