Microfinance firm Bandhan Financial Services Pvt. Ltd. may raise an equity round of up to $35 million from International Financial Corporation (IFC), the private investment arm of World Bank. The deal could be the largest equity fundraise by a microfinance institution after the AP ordinance crisis hit the industry. Kolkata-based Bandhan was founded by Chandrasekhar Ghosh in 2001 and is the fourth largest MFI in India.
Bandhan Financial Services is the fastest growing MFIs in India whose base of operations is out of Andhra Pradesh. Other major MFIs include SKS, Spandana Spoorthy, Bhartiya Samruddhi Finance, Share Microfin who are all based out of Andhra and have been impacted by the crackdown by the government. Also, it has till date only raised one round of equity funding when it got $10.7 million (Rs 50 crore) investment from Small Industries Development Bank of India (SIDBI).
Bandhan Financial Services operates in 18 Indian states focused on the northern and eastern parts of the country, including ones where population density is high and microfinance penetration is low. Bandhan has around 3 million borrowers and a loan portfolio of about $520 million.
The funding will help Bandhan expand its existing operations as well as expand its operations in other states. It will also expand its product portfolio and establish international best practice in its
operations and governance. Current shareholders include SIDBI which has a 10.81% stake and three public charitable trusts, who together hold an about 87% stake.
Bandhan operates through 1,553 branches in urban and rural areas and has 9,094 employees. West Bengal accounted for 70% of Bandhan’s total loan outstanding portfolio of Rs 1,983.7 crore as on Sept.30, 2010. Bandhan earned a profit-after-tax (PAT) of Rs 73.9 crore on total
income of Rs 274.1 crore in FY10 as compared to total income of Rs 150.7 crore and a PAT of Rs 26.1 crore in FY09.
The funding environment for MFIs is improving, especially for ones who have not been directly impacted by the AP ordinance. Late last month, Kerala-based Hope Microcredit Finance raised Rs 10 crore from Belgian investment firm Incofin Investment Management. Others like
Bangalore-based Ujjivan Financial Services raised Rs 40 crore through issuance of non-convertible debentures earlier this month.
Most recently, Hyderabad based Bhartiya Samruddhi Finance Ltd raised Rs 100 crore in loan from a a public sector bank.
Indian MFIs have raised more than $450 million across 66 deals from private equity investors between 2006 and 2010, according to VCCEdge. But the AP Ordinance, which besides putting restrictions on activities of MFIs has also sought barring them from raising funds PEs and
capital markets, put a stop to investment activity. Most of the large MFIs are headquartered in Andhra Pradesh.
In this backdrop equity funding and loans from banks have dried up for the sector though some positive news has been coming in the last few days.
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