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Private equity funds to buy stake in Janalakshmi Financial Services for Rs 350 crore

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Sabarinath M & ARCHANA RAI, ET Bureau Aug 8, 2013, 04.53AM IST

MUMBAI/BANGALORE: A consortium of private equity(PE) funds including Tata Capital’s PE fund and Morgan Stanley Global Private Equity will pick up a significant minority stake in urban microlenderJanalakshmi Financial Services for close to Rs 350 crore, signalling confidence in the long-term potential of the microfinance industry after being shattered by the financial crisis in Andhra Pradesh.
The infusion of fourth round of funding comes at a time when former Citi banker Ramesh Ramanathan-promoted non-banking finance company has applied for a licence from Reserve Bank of India to transform itself into a bank.

Morgan Stanley PE declined to comment. “Unfortunately, Tata Capital is not in a position to respond at this point of time,” said Arun Nanda, managing director, Rediffusion, the public relations agency for Tata group. ”No Comments,” said Ramesh Ramanathan.

“This is clearly a reflection of the opportunities that are unfolding in the micro finance industry. Local banks are better equipped to do doorstep service to customers than big banks,” said Vishwavir Ahuja, MD and CEO Ratnakar Bank. ”Doorstep banking is really needed for financial inclusion. Hence, better-run micro finance institutions will get the status of bank and ‘local area bank’ concept will get revived.”

The Bangalore-based non banking finance company had last raised Rs 80 crore from two global funds GAWA Microfinance Fund and India Financial Inclusion Fund (IFIF). Vallabh Bhansali, the co-founder of brokerage Enam Securities, is also an investor in the company.

Janalakshmi, which offers service to 5000,000 customers across 47 cities, is also among the most well capitalised microfinance institutions in India, raised over Rs 250 crore over the past few years from marquee investors including Citi Ventures and Singapore-based hedge fund Treeline Asia Master Fund.

Ramanathan, a managing graduate from Yale University, rose to managing director and European head of corporate derivatives before returning to India in 1998 with his wife Swati. The couple, with interests in urban governance and planning, pooled resources to set up Janaagraha, an urban civic advocacy group that remains central to a diverse portfolio that now includes for-profit ventures in affordable housing and urban microfinance. Today, he is known as the co-founder of urban civic movement Janaagraha and NBFC Janalakshmi.

In line with his social entrepreneur objective, Janalakshmi has been designed in a two tier structure: for-profit operating companies for investors; and a not-for-profit holding company called Janalakshmi Social Services in which promoter stakes are held. Funds in Janalakshmi Social Services can only be used to address social issues.

A spate of global private equity funds have recently invested in Indian microfinance firms, indicating strong growth potential for the microfinance industry. KKR had recently invested Rs 440 crore in NBFC Magma Fincorp which is rapidly expanding operations in semi urban and rural areas and IFC had invested in Ujjivan Financial Services.

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