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IFMR Capital raises $25 mn from Eight Roads Ventures; LeapFrog partly exits

11 November, 2016

Chennai-based non-banking financial company IFMR Capital has closed a second round of institutional funding from Eight Roads Ventures, the investment arm of Fidelity International Ltd, which will be investing up to $25 million (around Rs 168 crore) in the company, whose existing investor Leapfrog Investments has made a partial exit. 

The proceeds from Eight Roads Ventures, an early stage and growth capital investor in mid-sized companies, would be used to grow business in existing segments and explore other opportunities across new products and sectors, IFMR Capital said in a statement.  

Emerging markets impact investment firm LeapFrog, which invested $29 million (Rs 175 crore then) in the firm in 2014, partially exited the firm. Kabir Narang, partner and head of technology and financial services at Eight Roads Ventures India, will join the board of IFMR Capital. 

This is the largest investment for Eight Roads Ventures, which would be picking a stake the in mid-teen range, while LeapForg’s holding will be reduced from 42% to 34% after the transaction. 

“IFMR Capital has built strong sector specific capabilities resulting in steady growth while maintaining stringent credit processes and a high quality loan book. Our thesis was based on a combination of a macro play on the financial services sector along with the company’s differentiated positioning, strong credit processes, high quality management team and a track record of execution,” said Narang.

Narang said the investment is a play on multiple fast-growing financial services sub-sectors, including affordable housing finance, vehicle finance, microfinance and SME finance with a diversified risk profile across multiple companies.

“The non-bank financial services market in India remains an attractive segment for investment and we have been actively evaluating opportunities in this sector. The company is a pioneer in the financial inclusion sector and the largest organised firm providing credit to NBFCs from its own balance sheet and from the balance sheets of other leading financial institutions,” he said.

Kshama Fernandes, managing director and CEO, IFMR Capital, said the company helps connect financial institutions working with underserved segments to debt capital markets. “These segments are largely catered to by specialised NBFCs which often find it difficult to raise capital. As investors with understanding of these sectors, we underwrite risk and connect these originators to the right pools of capital, enabling them to grow in a sustainable manner,” she said.

“In India, a large proportion of institutions addressing financial exclusion lacks access to institutional credit themselves. There is a significant ‘missing middle segment’, left out by the mainstream credit delivery channels which financial institutions with specialised models of lending to the informal segment require. IFMR Capital serves as a bridge for such institutions, enabling them to raise funds from the capital market,” she added.

IFMR Capital was established in 2008 with a focus on the microfinance sector. Its caters to more than 100 financial institutions across affordable housing, small business, vehicle, agriculture finance, small finance banks and microfinance, serving over 25 million clients located in more than 500 districts of the country. 

Over the last eight years, the company has facilitated debt financing of more than Rs 30,000 crore to these institutions, according to the statement. In addition to expanding its originator and investor coverage, IFMR Capital has launched three domestic funds offering mid- to long-term debt funding to its partner originators.

Debt funds

IFMR Investments, the wholly-owned subsidiary of IFMR Capital, is also in the process of closing its second debt fund. In July, the company said it is looking to extend the timeline by a few months after receiving an enthusiastic response from investors.

The IFMR FImpact Long Term Multi Asset Class Fund had a target of raising Rs 250 crore by the end of June but it surpassed the mark in April itself.

It had raised Rs 306 crore and deployed Rs 264 crore, said Fernandes in an earlier interaction.

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IFMR Capital raises $25 mn from Eight Roads Ventures; LeapFrog partly exits

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