Belgium-based Incofin Investment Management has invested Rs 4.5 crore in Fusion Microfinance, a Delhi based microfinance startup operating in the north-central states of India. The company, founded by Devesh Sachdev, Ashish Tewari and Ankur Singhal, started its operations in January 2010. The microfinance institution also recently acquired the microfinance division of Aajeevika (a not for profit body operating in Delhi).
Fusion has a base of 2,600 clients in three states, covered by four branches, and a loan book of Rs 22.6 million. Fusion Microfinance has localised team experience in the rural geographies of Uttar Pradesh, Uttranchal, Delhi and Madhya Pradesh.
Aditya Bhandari of Incofin Investment Management told VCCircle, “A lot of MFI action especially from big institutions is concentrated in the southern region. We want to enter into areas which are less penetrated and we are looking at northern and central parts of the country.” This is the Incofin’s third investment in the Indian microfinance space and also the first Indian deal from its latest global fund, Rural Impulse Fund 2, together with investments undertaken from the fund in Brazil and Zambia.
Incofin, which recently raised a new fund of Euro 100 million called Rural Impulse Fund 2, has been very active in India with three investments in the last two years. In its first investment, the Belgian firm picked up a minority stake by investing Rs 8 crore in Asomi Finance Private Ltd. In late 2009, Incofin together with Luxembourg's MicroVentures Investments and Italy's MicroVentures SPA invested Rs 25 crore in Grameen Koota, a Bangalore-based MFI.
A host of reasons like a vast untapped rural market, lower default rates, the government’s emphasis on rural development and a volatile world economy have attracted deep interest from investors into this rather insulated sector. MFIs have reported growth in outstanding portfolio at a CAGR of 80% and ROE (Return on Equity) of 30% between 2003 and 2008. According to the 2008 microfinance industry report by Intellecap, the current Indian MFI market is around $1.5 billion with a penetration of around 10% while the overall market size estimated to be as high as $50 billion. Even MFIs seem to be ready to exploit new financial instruments like non-convertible debentures, commercial papers and IPO plans.