International finance Corporation (IFC), the private sector investment arm of World Bank, is investing around $91 million in PE-backed non-banking financial companies (NBFCs) Magma Fincorp Ltd, Bandhan Financial Services Pvt Ltd and Au Financiers (India) Pvt Ltd.
All these investments would be via the debt form through subscription to non-convertible debentures (NCDs) of the three companies, all of which are existing investee firms where IFC also holds an equity interest.
IFC will lend $35 million to Magma, $30 million to Au Financiers and around $26 million to Bandhan.
IFC’s investment will support capital base of Kolkata-based Magma, one of the top 20 NBFCs in India, with presence in 21 Indian states with total of 280 branches primarily targeting the semi-urban and rural markets. Magma had a portfolio volume of Rs 17,220 crore as of December 31, 2013.
The company plans to use the funds raised through issuance of NCDs to augment its capital adequacy, continue to focus on penetration in low-income states, especially targeting customers with lower incomes by financing smaller assets with smaller ticket sizes.
IFC currently holds 12.10 per cent stake in the company and other major shareholders include KKR (16.06 per cent), ChrysCapital (8.40 per cent) and India Capital Fund (5.12 per cent).
Au Financiers provides loans to low-income, self-employed, first-time and small transport entrepreneurs in semi-urban and rural Rajasthan and other states like Maharashtra, Gujarat, Madhya Pradesh, Punjab, Goa, Chhattisgarh and Delhi.
It primarily originates loans which are classified under priority sector and agriculture lending as per Reserve Bank of India (RBI)’s guidelines. These loans are targeted at segments that find it challenging to access bank financing.
Au offers loan with a ticket size of Rs 5-15 lakh and tenor of five years, for income generating activities of micro and small manufacturers and service enterprises, and agriculture based SMEs. The clientele include truck/ tractor body manufacturer, auto ancillary units, brick making units, carpenters, schools and other educational institutions. It has also launched a housing finance subsidiary—Au Housing Finance Limited—to provide small ticket affordable housing loans for new purchase, self-construction and home improvements.
The NBFC is backed by PE investors like Warburg Pincus, Motilal Oswal PE, ChrysCap besides IFC.
Bandhan Financial Services
Bandhan operates India’s largest microfinance institution through more than 2,000 branches in 22 states across India. It has a borrower base of more than 5 million women and a loan portfolio of around Rs 5,400 crore.
IFC’s proposed investment will help Bandhan diversify its sources of funding by providing subordinated debt which will enable it to increase its regulatory capital and to expand the outreach of access to microfinance to borrowers who have little or no access to formal sources of financing.
The other shareholders in the firm include Financial Inclusion Trust, North Eastern Financial Inclusion Trust and SIDBI.
(Edited by Joby Puthuparampil Johnson)