Muthoot Microfin raises $20 mn from US-based PE firm Creation Investments
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Muthoot Microfin Ltd (MML), a part of diversified financial services company Muthoot Pappachan Group (MPG), has raised growth capital for its microfinance business from Chicago-based PE fund Creation Investments Llc in its first private equity round of funding for any of its group companies, it said in a statement.

The firm has tied up for Rs 130 crore (around $20 million) of growth capital from the PE firm for an 11% stake in Muthoot Microfin, valuing the company at over Rs 1,111 crore.

The company proposes to open 500 more branches in three years. It will use the investment to spread mobile-based collection technology in rural areas.

The promoters will also infuse additional Rs 150 crore of capital which would be used to cater to bottom of the pyramid (BoP) clients and to expand business to newer geographies such as Bihar, Uttar Pradesh, Odisha, Chhattisgarh, Haryana and Punjab, in addition to the 10 states where it already operates.  

Of late, micro-lending companies have been under stress as the cash crunch following the government’s demonisation drive hit them hard.

The company said MML uses hand-held devices to collect instalments and routs its payments via mPesa.

The group has presence in various other sectors, including hospitality, automotive, realty, IT services, healthcare, global services and alternate energy. Its non-banking financial company (NBFC) Muthoot Capital Services Ltd is a listed entity with a market capitalisation of Rs 320 crore and offers commercial and consumer finance products. Promoters own about 74% stake in the firm. 

Muthoot Fincorp, the group’s flagship entity, offers gold and other loans. Muthoot Housing Finance Company Ltd, another group firm, offers housing loans. 

Listed Muthoot Finance Ltd is different from Muthoot Pappachan Group.

Muthoot Finance is backed by private equity investors including Abu Dhabi Investment Council, Citigroup, GIC, Goldman Sachs Asset Management and Kotak India Growth Fund.

In the past, it had attracted PE investors like Baring India PE and Matrix Partners which have already exited.

Thomas Muthoot, executive director, Muthoot Pappachan Group, said, “Our overall microfinance customer base is at 13 lakhs and we have provided loans to over 4 lakh rural households in FY2016-17 till December 2016. We have moved to complete bank disbursals. As a result, we are able to disburse loans worth Rs 300 crore every month.” 

“The microfinance business has performed well over the last six years. Promoters have committed to infuse capital worth Rs 150 crore into the company by March 2018,” he said.

Sadaf Sayeed, CEO, Muthoot Microfin Ltd, said the company's assets under management (AUM) grew at 122% (annualised) while profits and loan disbursements grew 222% and 75%, respectively, over the last year.

Its AUM grew from Rs 653 crore in March 2016 to Rs 1,252 crore as of December 2016 and PAT rose from Rs 9.4 crore for FY2015-16 to Rs 25.11 crore till 31 December 2017. It expects PAT to reach Rs 35 crore by 31 March 2017. Its disbursements grew form Rs 765 crore in FY2015-16 to Rs 1185 crore till end of third quarter of FY2016-17, it said in the statement.

The company said despite the recent disruption, its business is growing at a growth rate of 280% with non-performing assets (NPAs) at less than 0.60%.

In the next three months, it plans to disburse Rs 1,000 crore of loans to clients in a cashless manner. In the nine months of the current financial year, the firm has opened 166 branches across 10 states. Muthoot Microfin aims to reach Rs 10,000 crore of AUM by March 2020 and plans to expand its client base from 1.3 million households to 4 million households in three years, Sayeed said.

BMR Advisors acted as financial adviser while AZB &Partners acted as legal adviser to Muthoot for the transaction. Positron Consulting Services and J.Sagar & Associates acted as financial and legal advisers, respectively, for Creation.

Muthoot Microfin was granted NBFC-MFI licence by the reserve Bank of India (RBI) in 2015. The group hived off the microfinance business to the newly licensed firm last year. 

Creation focuses on private and control equity investments in microfinance institutions, small-and-medium enterprise lenders, BoP financial services providers and other social ventures in emerging markets, seeking to maximise financial and social returns on investment. The firm started investing in India in 2011 and has since then made multiple investments in the country by backing companies such as Eko India Financial Services, Equitas Holding, Fusion Microfinance, Grameen Koota Financial Services and Sonata Finance.

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