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Equitas files papers for IPO: Several PE, VC investors to exit – VC Circle

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It is the fifth largest microfinance firm in the country

Chennai-based microfinance firm Equitas Holdings Ltd has filed its draft herring prospectus with the capital markets regulator Securities and Exchange Board of India for its initial public offering (IPO).

The proposed issue would make Equitas the second microfinance institution (MFI) to go public, after SKS Microfinance listed on the bourses in 2010.

The IPO of SKS Microfinance, once the largest and now the second-largest MFI in the country by loan book, had attracted widespread attention. Its share price shot up soon after listing, but regulatory flux surrounding its once key market Andhra Pradesh punctured the firm’s business.

Although SKS has restructured heavily since then to once again emerge as one of the top MFIs by size, its share price is now half its IPO price and a fraction of its all-time high.

Equitas, the fifth-largest MFI behind Bandhan, SKS, Janalakshmi and Ujjivan, is one of the eight microfinance firms to secure a small finance bank licence last month. It would be the first among its small finance bank peers to tap the primary market to raise funds and reduce foreign shareholding to the 49 per cent limit set by the Reserve Bank of India.

The firm plans to raise Rs 600 crore through a fresh issue of shares besides giving part and full exit to several private investors. It said that it may raise Rs 300 crore by selling shares to institutional investors ahead of the IPO.

The firm is yet to freeze its issue price band. But given the two equity deals in the company over the past year the issue, including the offer for sale, would make it one of the biggest IPO in several years. It would trump the just concluded issue of Coffee Day Enterprises Ltd and could be just behind the proposed issue of budget airline IndiGo.

Here’s a snapshot of the Equitas IPO:

* Fresh issue of shares to raise up to Rs 600 crore (about $93 million) and an offer for sale of up to 130.8 million equity shares.
* Bankers: Edelweiss, ICICI Securities, Axis Capital and HSBC.

Object of the issue

Of the total money to be raised through a fresh issue of shares, the company plans to use Rs 520 crore towards investment in subsidiaries to augment their capital base. While Rs 240 crore would go into Equitas Microfinance Pvt Ltd (EMFL) and a similar amount into Equitas Finance Ltd (EFL), the remaining would be used for Equitas Housing Finance Ltd (EHFL).

* Incorporated in 2007, Equitas is a diversified financial services provider focused on individuals and micro and small enterprises (MSEs) that are underserved by formal financing channels.

* It is led by PN Vasudevan who holds a 3.17 per cent stake and is selling a small chunk of it as part of the offer for sale. Before founding Equitas, he had served as the head of the consumer banking group at Development Credit Bank Ltd (now DCB), for more than one-and-a-half years. He has also worked for about two decades in Cholamandalam Investment and Finance Co Ltd, part of the Murugappa Group, where he joined as a management trainee and resigned as vice president and business head of vehicle finance.

* Equitas is essentially a holding company and operates through its subsidiaries: EMFL is into microfinance lending, EFL is engaged in vehicle and MSEs lending while EHL is into housing finance.

* As of June 30, 2015, it had 520 branches across 11 states, one union territory and the NCT of Delhi.

* For the financial year ended March 31, 2015, the company’s consolidated revenue was Rs 755.93 crore against Rs 483.52 crore in FY14. Its net profit rose by over 40 per cent last year to Rs 106.6 crore. Its assets under management (AUM) as of June 30, 2015, stood at Rs 4,419.1 crore.

* Its microfinance business AUM increased at a CAGR of 43.6 per cent from Rs 723.9 crore as of March 31, 2012, to Rs 2,143.9 crore last year. This rose to Rs 2,319.4 crore as of June 30, 2015, which represented 52.4 per cent of its aggregate AUM. As of June 30, 2015, there were 2.58 million loan accounts in its microfinance business.

* In the vehicle finance business, its AUM has almost doubled annually over the last two years and ended FY15 with Rs 1,175. crore as of March 31, 2015, which represented 29.31 per cent of its aggregate AUM. Vehicle finance business AUM was Rs 1,248.9 crore as of June 30, 2015 with 45,029 loan accounts.

* The AUM of its MSE finance business increased from Rs 87.4 crore as of March 31, 2014 to Rs 510.9 crore last year. This shot up to Rs 656.1 crore as of June 30, 2015 with 29,627 loan accounts. A majority of its MSE finance business represents cross-sales to eligible higher income microfinance business customers.

* The AUM of its housing finance business has doubled annually for the past two financial years. It grew to Rs 179.5 crore as of March 31, 2015 and to Rs 194.5 crore as of June 30, 2015, spread across 3,360 loan accounts.


The firm counts around a dozen venture capital, private equity and development financial institutions as private investors. Around 93 per cent stake of the firm is held by foreign investors including overseas incorporated bodies.

IFC, CDC, India Financial Inclusion Fund, CreditAccess and Creation Investments are the top five shareholders of the firm. In the proposed offer for sale, some like Sequoia Capital, WestBridge, Aavishkaar, Lumen, Aquarius, and MVH are exiting their investments. IFC, FMO, Helion, Creation, Sarva Capital are part exiting while India Financial Inclusion Fund is offering to sell bulk of its holding.

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Grameen Koota Reaches Milestone with 1 Million Microfinance Customers

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Monday, July 27, 2015 3:00PM IST (9:30AM GMT)
Bangalore, Karnataka, India

Bangalore-based NBFC –MFI, Grameen Koota Financial Services Pvt Ltd (Grameen Koota) has reached a new milestone of 1 million microfinance customers, in a testimony to its strong client-centric approach aimed at providing holistic financial and social services.

Grameen Koota, with 3,000 employees working in 270 branches spread across Karnataka, Maharashtra, Tamil Nadu, Madhya Pradesh and Chhattisgarh, reached one million customers with a portfolio of Rs.1, 602 as of 30th June 2015. As part of its future mission, Grameen Koota has been striving to reach over 2 million poor and low income households through financial products and development services by 2020.

Founded as an NGO project in 1999 by Vinatha M. Reddy to cater the need of micro-credit to the rural low-income households, the MFI was modeled after taking inspiration from the success story of Nobel Laureate Prof.Muhammad Yunus and his Grameen Bank. Suresh K Krishna as Co-Promoter and Director supported her in this initiative, which has grown largely after its transition into a non-banking financial corporation (NBFC) in 2007-08.

On reaching one-million customer base, Vinatha M Reddy, who is also Chairperson of Grameen Koota, said, “As a responsible MFI, Grameen Koota will continue its meaningful work with renewed commitment and reach out to thousands of other unbanked households in the coming years.”

Suresh K Krishna, Co-Promoter & Director of Grameen Koota, echoed similar views when he said, “The success of Grameen Koota is also a demonstration of the need and relevance of microfinance services to the poor and low income households. Grameen Koota will continue to be client centric organization and provide need based microfinance services in a transparent manner. I also thank and recognize the efforts of over 3,000 employees who have been working tirelessly, with the passion to see change in the community.”

Udaya Kumar, Managing Director and CEO of Grameen Koota, said: “We serve with our responsible lending principles along with social focus by providing financial literacy, micro-credit for all their needs, awareness on social, economic, education, health hygiene, water, sanitation etc. Customer Retention of over 90% validates our pro-poor business and social focus.”

Grameen Koota is backed by CreditAccess Asia & Creation Investments Capital Management, MFI focus investors, who have been aligned with vision and mission of the promoters.  Major Private and public sector Banks including Axis, ICICI, IDBI, SIDBI, State Bank of India, among others are the lending partners. Further, Grameen Koota has been supported by international lenders such as Standard Chartered Bank, Blue Orchard, responsAbility, Triodos Investments and others.

Congratulating Grameen Koota on reaching its milestone of one-million customers, Paolo Brichetti, Founder & CEO, CreditAccess Asia, said, “Grameen Koota is a key part of our integrated Group of credit institutions and we are very proud of this excellent result. We have supported the company since 2009 and it has been exciting to support the Management Team of Grameen Koota in this path to impressive growth. Continuing to keep focus on clients’ interests, will ensure that Grameen Koota will reach new milestones.”

Ken Vander Weele, Co-Founder and Partner of Creation Investments, said, “We are very pleased to be a shareholder in Grameen Koota. The Company has been uniquely able to manage rapid growth without ever compromising on the quality of service to its clients or the principles of client protection and care.”

About Grameen Koota Financial Services Pvt Ltd

Grameen Koota is one of the 5 financial institutions in the world and one of the 3 microfinance institutions (MFI) in India to have been honored by Smart Campaign for having met all the client protection principles. It is also one of the few MFIs be awarded with Truelift Certification of ‘Achiever’s level’ by M-CRIL and Social Rating of  Σα-(alpha- minus) for its commitment on social performance and pro-poor business.

Grameen Koota has been working with Joint Liability Groups formed exclusively of women belonging to poor and low income households by providing them with its diverse credit products catering all life-cycle needs such as income generation and access to water, sanitation, education, health care, home repairs, emergency, energy efficient cook stove etc. It gives its clients the option to repay weekly, fortnightly or monthly, depending on their cash flow and convenience.

More information:

Photo Caption: Grameen Koota reaches milestone with 1 million microfinance customers, a testimony of its strong client-centric approach. Photo Credit: Vikash Kumar

For News Release background on Grameen Koota click here
Media Contact Details
Udaya Kumar, MD & CEO, Grameen Koota Financial Services Pvt Ltd, +91-9901100889,

Janalakshmi to lead investor rush into Indian microfinance sector

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After Janalakshmi’s record-breaking deal, Indian MFI sector likely to raise Rs 2,000 crore ($335 million USD) in 2014

Janalakshmi Financial Services, a non-banking financial company (NBFC) focused on the urban under-served, is expected to lead the rush of (PE) funds into India’s sector, signalling a strong recovery. According to sources, global PE major is among the two global that are in advanced discussions with the Bangalore-based firm to invest about $100 million with an existing investor.

As and when Janalakshmi, started by social entrepreneur Ramesh Ramanathan, sews up the transaction, it will mark India’s largest PE funding in the microfinance sector, which was recently hit by a major crisis in Andhra Pradesh (AP). Last year, Janalakshmi had raised a record Rs 325 crore; the funding round was led by Morgan Stanley.

After this transaction, which is to close by October 2014, eight other microfinance institutions are expected to the funding rounds by raising Rs 2,000 crore by the end of FY15. According to sources, Ujjivan Financial Services, started by Samit Ghosh, will initiate a fund raise for Rs 350 crore. Various other fast-emerging microfinance institutions such as Grameen Koota, Utkarsh Microfinance, Satin Creditcare Network, Sonata Finance, and Suryoday Micro Finance are among those that have initiated talks to raise PE funds.

CARE Ratings said in a recent report the microfinance sector was entering a phase of relative stability after going through three broad risk phases in the past – high growth (till 2010), high volatility (2010-11), consolidation (2011-13).

Explaining the rationale, CARE Ratings said: “The overall credit profile of the MFIs (microfinance institutions) has shown improvement with improving profitability, as stable margins are expected during FY14 onwards on account of removal of interest rate cap and control in operating expenses. The players in the sector are also adequately capitalised with overall gearing increasing moderately in spite of good growth in the loan portfolio in FY13. Overall gearing has been at comfortable levels mainly on account of equity infusion from the private equity investors post AP crisis.”

JP Morgan and Global Impact Investing Network in their research said that investments into social impact space was likely to increase globally during 2014, with South Asia and Southeast Asia among the top regions likely to attract a major share. Intellecap, an advisory firm focused on social enterprises, said $1.6 billion of capital has been invested in 220 impact enterprises across India, with half of the investments in microfinance. Unitus Capital, an impact investment-focused investment bank, expects impact equity investments in India to grow 30 per cent this year.

In its recent report, Intellecap added that the microfinance sector alone has been able to attract $225 million in follow-on capital involving only mainstream PE and venture capital investors in later rounds, indicating the sector’s ability to attract mainstream capital without the support of impact funds. Cumulatively, the microfinance sector saw total investments of $458 million from mainstream venture capital and PE investors in the first round and follow-on deals.


Commercial Credit and Finance PLC receives Rs. 1.68 billion from Creation Investments: the Largest International PE Investment into a Sri Lankan LFC

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Leading frontier markets private equity investor, Creation Investments Capital Management LLC (“Creation”), through its wholly owned subsidiary, Creation Investments Sri Lanka LLC (“Creation Sri Lanka”), has agreed to invest Rs. 1.68 billion (US$12.4 million equivalent) into one of Sri Lanka’s leading finance companies, Commercial Credit and Finance PLC (“CCF”). The transaction will involve the issuance of 80 million new shares for a consideration of Rs. 1.68 billion or approximately 25.15% of CCF. The transaction has received the necessary CBSL, SEC and CSE approvals and will be completed subject to shareholder approval.


This is the largest investment by an international private equity fund into a publicly listed Sri Lankan licensed finance company and is a strong validation for the success of CCF. Creation is impressed by the strength of CCF’s leadership and commitment to the mission toward serving the under-banked population in Sri Lanka. The offered price at a significant premium to the trading value and NAV indicates strong future growth potential for the company. The new funds will be used by CCF for its future investment activities including further enhancing its branch network and expanding its asset and client base, and to meet the future capital adequacy requirements of the Company.


Creation has invested in many banks and finance companies across emerging markets and its investment into CCF will help provide guidance and support to CCF and promote best practises from its other international portfolio investments. The new equity investment will also strengthen the capitalisation of CCF and enable it to access international debt capital at attractive rates.


York Street Partners (Pvt) Ltd. acted as Sole Financial Advisor to the transaction. Varners was the Legal Advisor to CCF and FJ&G De Saram was the Legal Advisor to Creation.


Roshan Egodage, CEO of CCF, commented on the transaction, “we are committed to providing a wide range of financial products to the Sri Lankan consumer including a variety of microfinance and SME products combined with a high quality service which is part of our core values. Our partnership with Creation will enable us to continue this journey and grow the company towards becoming Sri Lanka’s leading licensed finance company”.


Patrick Fisher, CEO of Creation, added that “this is our first investment in Sri Lanka and the largest investment that we have made to date across our Creation Investments Social Venture Funds. We look for quality investment opportunities across many emerging and frontier markets globally. CCF exemplifies what we look for in prospective investments – market leadership, exceptional management, and alignment in the mission, vision and values. CCF is a leader in the Sri Lankan LFC sector given its tremendous growth in the past few years. We are excited to partner with the CCF team in supporting their future growth plans”.


“This was a complex transaction that required careful negotiation through several structured options as well as regulatory approvals”, Sujendra Mather, MD at York Street Partners said reflecting on the transaction. He further added, “we are delighted to see the successful outcome of this transaction which is truly a win-win for both CCF and Creation and comes at an opportune moment when several key changes are taking place in the financial services landscape in Sri Lanka”.


About Creation Investments Capital Management LLC

Creation Investments Capital Management LLC is a Chicago-based private equity firm founded in 2007 with over US$130 million under management. Its investor base includes Fortune 100 Banks, Insurance Companies, Hedge Funds and High Net Worth Individuals. Creation has invested in a number of financial services companies in emerging markets such as India, Mexico and Russia.


About Commercial Credit and Finance

Commercial Credit and Finance PLC is one of Sri Lanka’s leading finance companies with an asset base of Rs. 24.5 billion as at December 31, 2013 and is listed on the CSE. CCF has a wide range of financial products including an innovative portfolio of SME and Micro SME products which are distributed to over 400,000 customers through 60 branches across the island. CCF has a rating of BB+ from RAM Ratings.



Creation Investments to invest Rs. 1.68 b in Commercial Credit for 25% stake – Financial Times

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Commercial Credit and Finance (COCR) yesterday announced that the Board of Directors has approved the investment of Rs. 1.68 billion in the company by way of a private placement of shares at Rs. 21 per ordinary voting share.

US Delaware incorporated Creation Investments Sri Lanka LLC will be the company to which shares are to be allotted. The move has been approved by the Central Bank and the Securities and Exchange Commission but subject to shareholder consent.

The purpose of the issue is to meet the future capital adequacy requirements and for its future investment activities.

The maximum number of shares to be issued is 80 million voting shares (25% stake eventually) via two tranches. The first will be 48 million shares for a consideration of Rs. 1.008 billion and the second tranche will amount to 32 million shares for a value of Rs. 672 million, before March 2015.
Major shareholder of Commercial Credit and Finance is BG Investments Ltd with a 78% stake whilst Mrs. Vagdevi Fernando holds 7%.  Company has 238 million shares in issue at present. Share price closed at Rs. 16.10.

Making a profit from making a difference –

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August 5, 2012 5:40 am

Making a profit from making a difference

By Sophia Grene

Sustainable logging carried out in Cameroon in the Congo Basin natural woodland©GettySustainable logging carried out in Cameroon in the Congo Basin natural woodland: preserving forests is just one project impact investing can help

To many, investment is purely about generating a return on their money, but a growing band of wealthy individuals and institutions are seeking to achieve a little more.

“There’s a growing hunger from the wealthy to go beyond how to spend it, understanding if they don’t engage with these [social and environmental] issues, social problems will arrive on their doorstep,” says Paul Szkiler, chief executive of Truestone Impact Investment.

Impact investing, most commonly defined as investments made with the intention of helping to solve a social or environmental problem as well as generating a financial return, has seen growing interest from investors, particularly since the financial crisis.

It covers a wide range of areas, from microfinance to private equity in developing markets and even “social bonds”, an innovative way for governments to fund services provided by non-state bodies on a payment-for-results basis.

The term impact investing was coined by the Rockefeller Foundation in 2007 and a year later the Global Impact Investors Network was launched. Since then, investment managers and intermediaries report a steady increase in interest in the sector, but it is hard to pin down a reliable figure, given the sector’s fragmented nature and the difficulty of defining it.

For one of the most developed and codified sectors of the impact investing world – microfinance – estimates as of 2010 vary from $7bn invested (from Swiss microfinance manager and adviser Symbiotics) to $24bn committed (from the Consultative Group to Assist the Poor), demonstrating the difficulty of getting a sense of the size of the sector.

The GIIN definition is frequently adopted: “Impact investments are investments made into companies, organisations, and funds with the intention to generate measurable social and environmental impact alongside a financial return”, but even that leaves a number of queries, such as whether that financial return is expected to match market returns or if it comes second in any conflict between it and the social impact.

In general, practitioners and investors are keen to make a distinction between “social impact first” investments, where the investor is prepared to sacrifice some financial return in exchange for the belief their money is doing good, and “social and financial” investments, where the investment product aims to produce returns comparable with the market.

“The second type appeals more to high net worth individuals,” says François Passant, executive director at Eurosif, the European social investment forum. “It’s got that entrepreneurial spin that resonates with them.” For people who got rich by building their own business, it feels more appropriate to help others by encouraging them to work for themselves than to give money, he explains.

Mr Szkiler remembers a presentation to JPMorgan about his business: “The global research guys were saying ‘hmm, that’s ambitious’, but the wealth management people said ‘that’s exactly what we’re looking for for our clients’.”

Truestone is about to start fundraising for its Global Impact Fund, which aims to return an annualised 8 to 10 per cent net over the medium-to-long term. With a six month lock-up period, the fund does require investors to be prepared to take a longer-term view, but Mr Szkiler is confident of reaching his target of £40m.

Institutional investors are not immune to the appeal of doing well by doing good, he adds. “We see institutional investors in that area, but so far really only the giants,” he says. Their motives may not be precisely the same as those of individuals: “There’s an element of looking for stable financial returns, even if modest, that are decorrelated with the rest of financial markets.

“There’s also a reputational benefit for the large institutional investor, and there is the concept of universal ownership,” he adds.

The theory of universal ownership states that beneficial owners in a fund not only have an interest in direct financial returns but also in making sure their investments work towards improving the world in which the investors live.

The categorisation of an investment vehicle as impact investment does not always come from the promoter. Nikko Asset Management has two World Bank Green Bond funds, invested in the triple-A issuer’s bonds – proceeds from which are used to fund climate change mitigation projects.

“We didn’t set it up as an impact bond, but it falls in that direction naturally,” says Stuart Kinnersley, Nikko’s European chief investment officer. “Investors are getting this positive externality in addition to the market returns you would expect.”

Nikko’s institutional vehicle has seen approaches from investors specifically interested because they have identified it as an impact opportunity. “Many people are questioning the current model of capitalism,” points out Mr Kinnersley. A version that makes explicit use of the structures of capitalism to improve the world seems attractive to many of those questioners.

Unsurprisingly, development financial institutions such as the German KfW bank or Triodos Bank are interested in impact investing, as are many charities that rely on income from an endowment and prefer to make investments related to their mission rather than arbitrary unrelated investments.

In the UK, there are plans afoot to raise the profile of impact investing and make it more accessible to retail investors. This is the aim of the Social Stock Exchange, likely to launch some time next year.

It is the brainchild of Pradeep Jethi, a former product developer at the London Stock Exchange, and is backed by the Rockefeller Foundation and the UK’s Big Society Capital.

“I want to use my capitalist skills to make the world a better place,” says Mr Jethi. “If we don’t do something, capitalism will eat itself.”

Copyright The Financial Times Limited 2012.

Using Small Loans to Generate Big Profits – Microlending Drives One of Africa’s Most Ambitious Banks –

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NAIROBI, Kenya—At a recent group-lending meeting in the Kawangware slum, about 10 miles from downtown, Jackson Munyovi sought $350 to build a new shanty for his wife and two children.



Nichole Sobecki for The Wall Street JournalJackson Munyovi borrowed $350 to build a new shanty for his two children and wife.

The 31-year-old welder asked fellow church congregants and friends to co-sign a loan to finance building materials. A church deacon vouched for the borrower’s assets, including a few metal-shop machines and his marital bed, and Mr. Munyovi promised to repay the loan in six months, plus 8% interest.

And with that, Equity Bank Group—one of Africa’s most ambitious banks—snagged another customer.

The Kenyan bank has enjoyed a booming business lending to people with little collateral beyond the potential disgrace of letting friends down. Equity executives aren’t shy about a business model that leverages societal mores and shame—often the strongest collateral to be found on a continent where formal credit records are scarce beyond the biggest cities.

“If a woman secures a mortgage with her matrimonial bed, she will never default,” declares Chief Executive Officer James Mwangi. “And other women will support her just to ensure that that matrimonial bed is not removed when the husband is not there. Here, social relationships are more valuable than economic relationships.”

In this field, known as microlending, Equity executives say their main competition isn’t other banks—it is the bedroom mattresses where many Africans store their savings. Nearly 90% of Equity’s customers are first-time bank clients, Mr. Mwangi said.

The unbanked represent about 80% of Africa’s adult population, or 326 million people, according to banking-industry estimates. Most of those people are employed in Africa’s massive informal sector—a term describing an untaxed, unregulated part of the economy.

Among African microfinance institutions, both public and private, performance has lagged behind similar lending organizations elsewhere, according to a recent study by the Consultative Group to Assist the Poor, a microfinance-policy-research group supported by the World Bank. Only 25 African microfinance institutions have assets greater than $30 million, compared with Latin America and the Caribbean with 105 institutions and 62 in Europe and Central Asia.

Leveraging Friends in Kenya’s Slums

Nichole Sobecki for The Wall Street JournalWorkers take a break at Jackson Munyovi’s metal shop.

Other Kenyan banks, particularly Kenya Commercial Bank, also are expanding their customer bases by targeting small borrowers in the informal economy, but none have caught up with Equity, which pioneered the idea of signing the unbanked in Kenya and fortified its position with the nation’s largest network of storefront banking agents.

That leaves Equity with few competitors in Africa and none that can match its scale.

The bank started out as Equity Building Society in 1984, a mortgage financier for low-income Kenyans. The company nearly collapsed by the 1990s due to management shortcomings, a downturn in the nation’s banking sector and nonperforming loans topping 54% of its portfolio.

Mr. Mwangi joined the bank in 1993 after working for Ernst & Young and Trade Bank, a now-defunct Kenyan bank, and was its chief executive officer by 2004. He is credited with fashioning its microlending strategy and steering it toward profitability by targeting individuals with deposits of less than $200 and little collateral beyond the willingness of friends and neighbors to vouch for them.

For the bank, amorphous social relationships that bind communities—church and mosque associations, tribal and familial relationships, company and school affiliations—became a hard asset.

In their lending decisions, executives used a hybrid approach that combines hard-nosed cultural analysis with microlending techniques. Such methods are common at nonprofit institutions, but Equity has used them to make money.

In 2011, pretax profit surged 42% to $150 million, making it Kenya’s second-most profitable bank after Kenya Commercial Bank. About a third of Equity’s loans in 2011 were noncollateralized payday advances for as little as $12 for civil servants who agreed to repay the loans with 10% interest taken out of their next paycheck.

An additional 11% of Equity’s loans were to small enterprises such as fruit stands, used-clothing racks and hair salons. Collateral can include anything from furniture, household appliances or the business’s assets.

Upon repayment, borrowers can qualify for loans of $590 and then $886 to be paid over the same term. The final step for new borrowers is a $1,200 loan to be paid within a year.

Godfrey Chege is one such customer: He received a loan for almost $1,200 from Equity to expand his chicken-selling business. He and his wife pledged their bed as collateral.

Eighteen months after Equity opened an office in Kibera, one of the world’s largest slums, the branch had more than 15,000 clients, according to Francis Mbindyo, a manager of the recently opened Kibera branch.

Customer lines at other Equity bank branches often snake out the front door. Mr. Mbindyo says borrowers must also be part of a loan group of at least a dozen people willing to be co-signers.

Nonperforming loans accounted for 2.7% of Equity’s total portfolio, according to the company’s most recent quarterly statement.

For 88% of Equity’s customers, the bank was the first bank at which they ever opened an account, and more than three-quarters of Equity’s loans are unsecured by collateral.

Equity also uses an agency model in Kenya, paying commissions to storefront operators who act as remote bank tellers in rural areas. The bank had nearly 4,000 agency locations in March 2012, compared with 875 at the beginning of 2011. One-fifth of Equity’s cash transactions are done through agents, according to company statements.

Equity is also expanding regionally. The bank has opened a total of 51 branches in Uganda, South Sudan and, most recently, in Rwanda and Tanzania. Those forays were preceded by yearlong executive-training programs for local staff, said Mr. Mwangi.

“We want to be an international bank that is a local bank in every community,” he said.

Fruit farmer Thomas Kimote’s first Equity loan was for about $200 four years ago. He used the money to expand his operation and he now supplies several of Kenya’s largest grocery stores.

“I am more of distributor now,” said Mr. Kimote.

Mr. Mbindyo, Equity’s Kibera branch manager, said that Mr. Kimote’s business had resulted in other customers for the bank, including his suppliers, his drivers and others linked to his enterprise.

A version of this article appeared July 23, 2012, on page C1 in the U.S. edition of The Wall Street Journal, with the headline: Finding Big Profits In Many Little Loans.

Morgan Stanley Smith Barney Announces Launch of Investing with Impact Platform

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Investing with Impact Platform offers an investment approach targeting risk-adjusted financial returns as well as positive environmental and social impact

Submitted by:Morgan Stanley

Categories:Socially Responsible Investing,Finance

Posted:Apr 26, 2012 – 01:30 PM EST


NEW YORK, Apr. 26 /CSRwire/ – Morgan Stanley Smith Barney today announced the launch of a new investment platform designed to help clients align their financial goals and their personal values. The Investing with Impact Platform offers clients and Financial Advisors a broad range of investment options.

The concept of integrating social and environmental impact into investment decisions is not new, but its growing importance has led to a greater opportunity set for investors. Nearly one in eight dollars under professional management in the U.S. or about $3.07 trillion follows investment strategies that consider corporate responsibility and societal concerns.1

“This is an important initiative for Morgan Stanley Smith Barney,” said Andy Saperstein, Head of Wealth Management, U.S., at Morgan Stanley Smith Barney.”We hear frequently from clients and Financial Advisors about the importance of integrating sustainability themes into their investment portfolios. Now through the Investing with Impact Platform, MSSB is able to offer our clients an action-oriented approach to combine financial returns and their personal values.”

At launch, the Investing with Impact Platform will offer clients access to many opportunities spanning public and private market products through their Financial Advisors. This is the first phase in Morgan Stanley Smith Barney’s focused effort to meet investors’ desire for investment opportunities that center on positive social and environmental impact, without sacrificing financial performance potential. The launch of the Investing with Impact Platform will provide a substantial base on which to expand our offerings over time.

“Our goal is to build this into a robust offering to meet our clients’ needs, regardless of their impact priorities or what their portfolio fit might require,” said Paul Hatch, Head of Investment Strategy & Client Solutions at Morgan Stanley Smith Barney. “With over four million clients who have more than $1.7 trillion of investable assets, we are in a unique position to extend the reach of an ‘investing with impact’ program to one of the largest sets of investors in the world. Even a fraction of this total represents a substantial amount that could be invested in support of the common good.”

“At Morgan Stanley and MSSB, sustainability is at the core of our business and now, with the launch of the Investing with Impact Platform, we are able to help our wealth management clients align their investments with their desire to positively impact their communities,” commented Audrey Choi, Head of Global Sustainable Finance at Morgan Stanley. “We believe investments targeting positive environmental and social impact should be available to all investors from individuals to large scale institutions, and we look forward to continuing to broaden the reach.”

To find out more about the Investing with Impact Platform at Morgan Stanley Smith Barney, please contact your Financial Advisor or email

Morgan Stanley Smith Barney, a global leader in wealth management, provides access to a wide range of products and services to individuals, businesses and institutions, including brokerage and investment advisory services, financial and wealth planning, credit and lending, cash management, annuities and insurance, retirement and trust services.

For further information about Morgan Stanley Smith Barney, please

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1 U.S. SIF: The Forum for Sustainable and Responsible Investment, Report on Socially Responsible Investing Trends in the United States, 2010

What the world can learn from the Indian microfinance crisis?

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By Sanjay Sinha,

Microfinance Focus, January 3, 2011: The “great Indian microfinance crisis” has shaken the world of microfinance.  An industry that grew at 90% on an annual basis from 2002-03 to 2009-10 was reduced to just 7% growth in 2010-11 with its portfolio over the period October 2010 (when the crisis started) to September 2011 (at the time of writing) estimated by M-CRIL to fall by around 33%.  As measured by CRILEX, M-CRIL’s growth index for microfinance, India’s microfinance industry is estimated to have reached 9,000 by 30 September 2010 but to have fallen back to just 6,000 a year later.  How such a situation came to pass is the stuff of legend, repeated many times over in the history of industrial growth – a slow growth “tortoise” phase, an accelerating “nimble hare” phase, an uncontrolled growth “charging bull” phase and, now, a “bewildered deer” caught in the headlights of draconian regulation, uncertain which way to go.  Whether, like Starbucks the coffee shop chain, recounted in its famous story published recently, it will learn some lessons and revive or whether, ostrich-like, it will battle on accusing its detractors of being negative and gradually sink into oblivion remains to be seen.

In order to consider what the world can learn from the crisis, we must first consider what caused it.  It is not the purpose of this piece to go over the ground, yet again, that has been covered extensively over the past year by journalists, analysts and academic writers; nevertheless it is useful first to clear away the debris of causes that were laid in the path of the charging bull but, in practice, were not the cause of its downfall.  Understanding what caused it to trip is the first step in identifying the lessons the world can learn from the fall.

The debris: What did not cause the charging bull to fall

Exorbitant interest rates: It is astonishing in travelling the world to talk about the crisis, to discover the number of people in countries from China to Peru who think that it was exorbitant interest rates that caused the crisis.  In truth, as the M-CRIL Microfinance Review 2010 has shown, interest rates in Indian microfinance are amongst the lowest in the world.  Microfinance yields of the order of 25%-28% are lower than the 35%-40% of MFIs in Southeast Asia and far lower than the higher rates of 40%-60% that are the norm in other parts of the world.  The number of MFIs with annual percentage rates (APRs, the theoretical charge of the loan to the borrower on the MFI’s loan terms) in excess of 40% is no more than a handful amongst the 60 leading MFIs in India.  This, in a country where even SMEs financed by the commercial banking system regularly face APRs of the order of 18%-20% and where moneylender rates for the poorest borrowers range from 36% in a few of the more prosperous regions to 60%, 120% and more elsewhere.

Client coercion: For all the noise in the media about client coercion, particularly in the state of Andhra Pradesh where the crisis started, there is little evidence of a systematic approach by any of the more significant MFIs to acquire forcibly the physical assets of delinquent clients or to harass them deliberately in order to force them to pay their loans.

The hurdles:  What did cause the fall

High growth: The high rate of growth of the Indian microfinance industry was referred to in the opening paragraph of this piece; a number of MFIs grew even faster.  The sustainability of a particular rate of growth is clearly different for organizations of different sizes.  It is the stuff of folklore, a nimble hare can go at high speeds indefinitely but would eventually slow down from exhaustion, a brake applied by nature to its over-enthusiasm, but a charging bull is likely to face physical obstacles even before the limited capabilities imposed by its lumbering physique cause it to stop.  Some of the largest MFIs in India had become charging bulls by the time of the crisis with staff complements of the order of 10,000 and more and annual client acquisition targets in the millions.  In a country with an economic growth rate of 7-9% per annum, and a relatively limited educational system, the most competent staff had many other employment options and meant, for the largest MFIs, a staff turnover ratio of the order of 30-40%.  Imagine having to train some 4,000 staff in order to replace those who leave plus another 10,000 because your ambition extends to doubling the number of clients served in a single year.  Naturally, with so many new staff, short-cuts in client acquisition and laxity in control systems become increasingly likely.  The lumbering size of the charging bull takes its physical toll on the body of the animal.

Multiple lending leading to over-indebtedness: However, there is also collateral damage to the environment through which the bull charges.  The industry’s quest for growth at all costs resulted in an over-simplification of its relationship with clients cutting out all its social messages and focusing simply on micro-money circulation; inducting clients for the sake of maximizing portfolio size while ignoring the possibility that they already had loans from other sources, and ignoring less developed parts of the country due to the well known first mover disadvantage in mass market situations – the first mover develops the market and the late comers crowd in and enjoy the benefits.

M-CRIL estimates that these practices resulted in around 40% overlap in those easy to reach clusters (nationwide) where microfinance operations became established.  These overlaps reached the extent of 200% and more in some of the more microfinance oriented parts of states like Andhra Pradesh, Tamil Nadu and West Bengal – so acute was the problem in some places that borrowers in Kolar district of Karnataka reported running from one meeting to another and/or spending as much as 2.5 hours per weekday at meetings where no more business was undertaken than making repayments, completing loan applications and receiving repayments (1). This effectively reductionist approach meant that the relationship between the MFI and the client was reduced to one that is little different from retailing; the development solidarity, preventive health and basic literacy objectives of the MFI group meetings of the 1990s were abandoned in the rush for growth.  Worse, since some clients had as many as four or five MFI loans there was also a tendency to over-indebtedness.  [In the absence of functioning credit bureaus and for lack of accurate information on client incomes, the extent of such over indebtedness is impossible to estimate; surveys based on recall and voluntary reporting by clients are unreliable on account of the natural tendency of clients to under-report both incomes and debt].

Unfortunately, in obtaining “easy money” from multiple agencies, it is likely that a few microfinance clients mismanaged their financial affairs, as people tend to do at any level of society, and cases of over-indebtedness emerged.  Even if we assume that this was a very small proportion of the total number of clients, say just 0.05%, this would amount to 9,000 such cases and the emergence from these of a few cases of suicide cannot be ruled out.  Whether or not these suicides are attributable to coercion by staff with limited understanding of their employer’s social responsibility to clients in genuine difficulty is a matter of debate.

Thus, did the charging bull damage its environment, knocking down bushes and saplings in its path as it sped along, sapping its energy in the process.  When it was actually felled, too many of the clients who might have been expected to rise in protest against such interference with their commercial relationships, breathed a sigh of relief at the immediate prospect of not having to rush from meeting to meeting, desperately managing cash flows in order to repay their loans.

Conflict of interest – government as competitor and regulator at the same time: What caused the crash in the end was not the oncoming physical exhaustion of the charging bull but by the insurmountable obstacle of state regulation, the lumbering elephant with its own microfinance programme but less efficient collection processes.  As in 2006 when there was a less pervasive crisis, government officers responsible for the state-sponsored self-help group (SHG) programme observed with increasing concern the repayment of MFI loans by the same clients who placed a lower priority on the repayment of SHG loans.  SHG loan repayment rates fell nationwide from a claimed 98% in the late 1990s to just 70% around 2007 even as the microfinance industry’s rush for growth continued unabated.

Come the media’s muck raking in the lead up to the SKS IPO and, in its aftermath, the sacking of its CEO, suicides allegedly caused by MFI stimulated over-indebtedness and coercive collection practices became the centre of attention.  Regrettably there are reports of farmer suicides in India every year and AP is often at the centre of such reports. These suicides are blamed, in turn, on agricultural loans from commercial banks, the failure of the monsoon and the collapse of the cotton economy in this semi-arid zone.  This time, however, suicides were blamed on microfinance and provided the state government of AP with a handle to proceed against the industry.  Accusing the MFIs of coercion, the state government introduced such draconian regulation of the practice of microfinance that it effectively brought the industry to a halt with collections down to 10% of expected repayment levels with portfolio risk going up to 50% for some of the leading MFIs with substantial portions of their portfolios in the state.  The charging bull had been felled by a brick wall suddenly placed in its path.

Over-reliance on a single source of funds: One way of reviving the injured bull at this point might have been to provide it with first aid to enable it to resume its journey at a more sedate pace. Thus, the microfinance industry could have continued to reach ever-larger numbers of financially excluded clients in other parts of the country if the supply of funds for lending outside AP were available.  In practice, the charge of the Indian MFIs had been fuelled by a combination of private investor funds for equity complemented by vast amounts of commercial bank funds as debt.

By March 2010, the volume of commercial bank debt with Indian MFIs was of the order of $4 billion or over 70% of the total funds deployed by the industry – a substantial amount for the MFIs but a minuscule fraction (0.64%) of the financial system.  Yet, at the first sign of trouble, commercial bank funds for MFIs to lend anywhere in India (not just in AP) dried up.  Despite the maintenance of the quality of microfinance portfolios in other parts of India at high levels, the banks have yet to return, in any significant way, to lending even to MFIs with no activities in AP.  It is this indirect effect, and not just the direct effect of the AP regulation, that has resulted in the 33% decline of the Indian microfinance industry.  The fact that investment (except from a few publicly funded sources like the IFC) also dried up at the first sign of trouble was only to be expected.  The injured bull had been deprived of all but the most minimal aid.

…from nimble hare to sleek mare

It is not the argument of the author that development organizations should not grow beyond a certain size.  The argument is that they should grow at a more manageable, sustainable pace, evolving from the nimble hare to acquire the dimensions of a sleek mare able to negotiate obstacles with a more versatile disposition than the angry, single-minded charging bull.  Key to such dimensions would be

1 A moderate rate of growth that both enables new staff to absorb the organization’s culture and undertake client acquisition in tune with its development mission and ensures that the system of control for rules governing aspects like client acquisition, loan refinancing and collection practices keeps pace with its expansion. M-CRIL’s experience suggests that growth rates of the order of 30%-50%, inversely proportional to the size of the MFI, are likely to be sustainable.

2 A better understanding of the needs of low income clients for financial products so that the industry evolves from the simple regime of the “one size fits all” conventional Grameen loan to a set of (3-4) products specifically designed for the clients the MFI aims to serve.  This would need to be regionally adjusted for loan size, loan term and repayment frequency depending on the economic activities of its clients.  The focus should be on the credit needs of clients along with the conventional MFI focus on minimizing its own risk by limiting its exposure to individual clients.  The net result of focusing on limiting MFI exposure is to force the client to seek loans from more than one source increasing the risk of over-indebtedness because nobody has actually assessed her capacity to service the full volume of her debt.

3 A greater engagement with the political economy of the regions in which they operate so that bureaucracy, politicians and media are all kept aware and sympathetic to the MFIs’ operational practices and goals.

4 A conscious effort to ensure that there is a diversity of sources of funds not just in terms of numbers of lenders/investors but also the type of such fund providers – commercial banks, development banks, social equity investors, private equity investors and, equally, clients as depositors.  It has been shown time and again (BRI Indonesia, Grameen-2 Bangladesh, SEWA Bank India) that microfinance clients have as much need for deposit services as for credit, yet regulators, unfortunately, are more concerned with the damage to their reputations from the defalcation of a few financial institutions with public deposits than they are about the loss suffered by low income families from the theft of cash and physical assets from their homes because they do not have access to deposit services.  Wherever the deposit option is available (as in Bangladesh) it provides an additional anchor of stability to the microfinancial system.

In recent years, many countries – Bosnia, Morocco, Nicaragua, Pakistan amongst others – have suffered microfinance crises for similar if not the same reasons.  Unfortunately, many more – Cambodia, Georgia, Nepal, Nigeria, the Philippines – are also ripe for such troubles if corrective action is not taken.  The fate of the Indian charging bull has caused some sober reflection; but there is an overwhelming tendency in international development for local operators to plead regional uniqueness as a reason for not learning lessons from others.  MFIs everywhere would do well to learn the lessons of the Indian crisis.  The issues discussed here are mainly generic; becoming a charging bull is not the path to long term success, the key is to understand how to evolve from a nimble hare into a sleek mare.


Reference: (1) Documented by M-CRIL’s parent organization EDA Rural Systems Pvt Ltd in EDA, 2010.  Microfinance and the Role of External Agents: A study of the Kolar delinquency crisis. Undertaken for the Association of Karnataka Microfinance Institutions (AKMI).

About the Author: Sanjay Sinha is Managing Director of Micro-Credit Ratings International, a global leader in the financial rating of microfinance institutions and in sectoral advisory services.

(Disclaimer: The opinions expressed are solely those of the author and do not necessarily represent opinion of Microfinance Focus. Microfinance Focus does not take any responsibility for correctness of the data presented by contributors.)

Creation Investment Social Ventures Fund I Announces a Final Fund Closing of $32 million in Committed Capital

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Creation Investment Social Ventures Fund I Announces a Final Fund Closing of $32 million in Committed Capital

CHICAGO, IL – January 14, 2010 – Creation Investments Social Ventures Fund I, a global Microfinance private equity fund, completed its final closing on December 15, 2010 with total committed capital of $31.8 million USD. The Fund’s investor base is composed of 74 US and European institutional investors along with many family offices and high net worth individuals. The Fund is governed by an independent Board of Directors and managed by Creation Investments Capital Management, LLC, headquartered in Chicago, Illinois.

To date, the Fund has deployed over half of its committed capital, making equity investments in five Microfinance Institutions (MFIs) and Small-and-Medium Enterprise Lenders in Latin America and Central and Eastern Europe. Specifically, portfolio holdings include: Aspire, S.A.P.I. de C.V. SOFOM E.N.R. (Mexico); MicroCred Mexico, S.A.P.I. de C.V. SOFOM E.N.R. (Mexico); Opportunity Albania (Albania); Inicjatywa Mikro (Poland); and Forus Bank (Russia). The Fund Manager co-led the establishment of CEE Microfinance Holdings, N.V. which manages the Fund’s three holdings in Central and Eastern Europe.

Each of these institutions is committed to providing financial services to under-banked individuals and businesses in its respective geography, helping to facilitate economic development and poverty alleviation. Beyond enterprise lending, several of the Fund’s portfolio companies offer micro-insurance, micro-savings, and other remittance services. As of November 30, 2010, the total aggregate loan portfolio is $95 million USD with over 30,000 active borrowers.

Creation Investment Social Ventures Fund I targets growth equity investments in early stage, high potential MFIs, as well as buyout equity investments in more mature MFIs transitioning out of NGO ownership. The Fund Manager seeks to add value and achieve greater scale through active management, in-market consolidation, and expansion of the financial product offering. The Fund aims to hold significant equity investments in three major geographic regions – Latin America, Asia, and Eastern Europe – resulting in a diverse, global portfolio in core emerging markets.

The Creation Investment’s team, led by Patrick Fisher and Ken Vander Weele, has proven their ability to originate unique impact investment transactions, recruit seasoned management for portfolio companies, access debt capital to fund growth, deliver technical assistance and technology to enhance systems, maintain a focus on client protection principles as a Smart Campaign member, and add value through active involvement in all levels of the business.

“We are excited to have brought sophisticated, private sector investors to a new asset class providing them with the opportunity to maximize their financial and social returns through robust impact investments” said Patrick Fisher, CEO and Co-Founder of the Fund Manager.

About Creation Investments Capital Management, LLC:
Creation Investments is an alternative investment management company committed to fighting global poverty through direct, for-profit investments in businesses which promote economic development. Creation Investments Capital Management, LLC manages and sponsors impact investment funds and one-off investments in social ventures, seeking to maximize financial and social returns on investment. For more information, go to: