Janalakshmi raises $50M from CDC

Janalakshmi Financial Services Pvt Ltd has raised Rs 330 crore ($50 million) from UK development finance institution CDC group to boost its tier II capital base, the Bengaluru-based microfinance institution said.

This marks the first funding for Janalakshmi after it got in-principle nod from the Reserve Bank of India to start a small finance bank. The company had raised Rs 177 crore ($27.7 million) last year through non-convertible debentures and an unsecured term loan from non-banking finance company IFMR Capital.

The firm, which has presence in about 170 cities across 19 states, said it will use the money to expand its operations and transition to a small finance bank. It had loans and advances outstanding of $900 million (Rs 6,000 crore) as of September 2015.

“The urban financial inclusion space is large and this large investment will facilitate our progress, especially as we transition into becoming a small finance bank,” said Ramesh Ramanathan, chairman of Janalakshmi.

Since the money is coming in as tier II capital, it won't change the equity ownership of the firm. Raising tier II capital allows financial institutions to improve capital adequacy ratios. CDC is an international investor and a plain vanilla equity issue would have pushed up overall foreign investors’ stake in the company further.

MFIs such as Janalakshmi that are to convert into small finance banks need to meet the norms set by RBI that limits foreign ownership to 49 per cent. Some other peers such as Equitas and Ujjivan, which have received small finance bank licences, have filed for IPOs to boost domestic ownership.

For CDC, this is the fourth investment in the Indian microfinance sector. The UK firm last year put money in Ujjivan  and in Equitas in 2013. It also has invested in Utkarsh Microfinance,  another small finance bank in the making.

This article has been updated based on more clarity on the deal structure.

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