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

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THURSDAY, OCTOBER 22, 2015

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).

Company
* 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.

Financials
* 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.

Investors

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.

Read more at:
http://www.vccircle.com/news/micro-finance/2015/10/17/equitas-files-papers-ipo

Grameen Koota raises $10 million USD (or 532 million INR) in its 3rd round of equity funding lead by Creation Investments

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Grameen Koota raises $10 million USD (or 532 million INR)
in its 3rd round of equity funding lead by Creation Investments

February 27, 2013 – Bangalore, India: Grameen Financial Services Pvt Ltd (GFSPL), popularly know as Grameen Koota today announced its third round of equity funding of $10 million USD (or 532 million INR) lead by Creation  Investments Capital Management (Creation Investments Social Ventures Fund II, L.P. USA.  Two current investors also invested in this round – Incofin Investment Management (IIM Impulse 2, Mauritius) and MicroVentures (MVHS.p.a, Italy and MV SICAR, Luxembourg).

GFSPL has been working with poor and low-income households for the past 13 years and has provided these households with diverse financial and developmental services that caters to all life-cycle needs of its over 350,000 clients spread across three states of Karnataka, Maharashtra and Tamil Nadu. The equity  funding comes close at the heels of the instiution receiving $3.9 million USD (or 210 million INR) in debt funding through unsecured, redeemable, non-convertible debentures (NCDs) from Global Commercial Microfinance Consortium II B.V., Netherlands, a fund managed by Deutsche Bank.

Speaking on the new equity infusion, GFSPL Managing Director Suresh Krishna, said “The newly infused funding will add to the growth of the company and help Grameen Koota achieve its target of reaching out to over 10 lakh poor and low income households.  The capital will also strengthen our vision towards extending and expanding our loan operations to other neighbouring states.”

GFSPL understands that micro-lending cannot happen in isolation and therefore has rigourously engaged in social development activities including entrepreneurial education, health, sanitation, etc. Commenting on the equity raised, Founder-Chairperson, GFSPL  Vinatha Reddy,  added “Ours has been a constant endevour towards being a well run MFI with a firm social purpose and we are happy that existing investors have reposed their faith in Grameen Koota’s work by increasing their stake, as we welcome Creation Investments, our new investor. ”

For Creation Investments, the equity funding is just the beginning of a long relationship with GFSPL. Speaking about the capital infusion, Creation Investments co-founder/director Ken Vander Weele said  “We are excited in partnering with a leading MFI like Grameen Koota that has brought about innovative loan products and are constantly evolving themselves to cater to the financial needs of the poor in India.“

Paolo Brichetti, Chairman of MicroVentures, a veteran in the social capital investment space in developing countries such as India, believes that the equity raised will only benefit the company and further enhance its activities towards accomplishing its  vision. He said, “Our relationship with Grameen Koota has deepened a further notch and we are glad that we continue to back an MFI like Grameen Koota that continues to remain a benchmark within the Indian Microfinance sector.”

Speaking on the follow-on investment in GFSPL, Aditya Bhandari (Regional Director, Incofin South Asia) stated “Grameen Koota’s instant brand recall amongst clients and its strong focus on client relationship makes it as one of the best MFIs in the world. We are excited to once-again support GFSPL in its vision to create long term sustainable value for all stakeholders (clients included).”

About Grameen Financial Services Private Limited:

Grameen Financial Services Private Limited (GFSPL), a microfinance institutions headquartered in Bangalore, popularly known as Grameen Koota has over 350,000 clients with 1300 employees working out from 168 branches in Karnataka, Maharashtra and Tamil Nadu. It had loan outstanding of about $84 million USD (or 4.5 billion INR). Being socially focused Microfinance Institutions; Grameen Koota has over a decade of experience in micro lending towards Joint Liability Groups formed exclusively of women from poor and low income households with other support products like Water, Sanitation, Health Care, Energy Efficient Cook Stove etc. For more information, visit www.gfspl.in

About Creation Investments Capital Management

Creation Investments is an alternative investment management company with over $100 million in assets under management. Named a leading Impact Investment fund manager by ImpactAssets50 in 2011, Creation Investments Capital Management, LLC currently manages 4b Capital Fund A, L3C, Creation Investments Social Ventures Fund I, and Creation Investments Social Ventures Fund II, with a focus on private equity 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 maximize financial and social returns on investment. Investments in microfinance and social ventures create opportunities through access to capital and needed products and services for those living in poverty to engage in small-business activity, income generation, and significantly impact those living at the bottom of the economic pyramid.

About MicroVentures

The MicroVentures initiative was started-up in Italy by a group of private social entrepreneurs with previous experience in the field of social venture capital and business cooperation with the Developing Countries. The initiative has gradually expanded into an international network of affiliates, which includes the Bangalore-based MicroVentures India (specialized in providing debt to indian MFIs), Bina Artha Indonesia and  MicroVentures Investments SICAR, a specialized investments fund based in Luxembourg, which provides equity  and debt financing to promising Microfinance Institutions in Asia and Latin America.

About Incofin Investment Management

Incofin Investment Management (www.incofin.com) is a specialized fund management company with more than 10 years of experience in microfinance and currently more than 350 M EUR assets under management. Incofin IM manages the following funds and facilities: Incofin CVSO (40 M EUR), Impulse (46 M EUR), Volksvermogen (10 M EUR), VDK (75 M EUR), Rural Impulse Fund I (30 M EUR), Rural Impulse Fund II (120 M EUR), BIO (10 M EUR) and Fair trade Access Fund (20 M EUR). Investors are mainly Western Europe and US based, including ~50% public investors (DFIs such as IFC, KfW, EIB, FMO, BIO etc) and ~50% private (institutional investors such as banks, pension funds etc). The total investment portfolio includes over 100 MFIs in more than 44 countries around the world. Incofin IM has a strong track record, having executed more than 566 transactions since 2003.

 

http://in.reuters.com/article/2013/03/06/grameen-koota-raises-10m-round-led-by-cr-idINDEE92504P20130306

 

http://www.legallyindia.com/201303043483/Private-equity-/-VC/tatva-jsa-on-us-social-vc-s-7m-pe-in-indian-mfi-grameen

 

http://www.ivcpost.com/articles/6926/20130306/grameen-koota.htm

 

http://www.thehindubusinessline.com/companies/grameen-koota-raises-rs-5320-cr-equity-fund/article4482251.ece

 

http://www.thehindubusinessline.com/industry-and-economy/banking/grameen-koota-raises-over-rs-53-cr-in-third-round-of-funding/article4479058.ece

 

http://articles.economictimes.indiatimes.com/2013-03-05/news/37469982_1_incofin-grameen-koota-microfinance-firm

 

http://www.altassets.net/private-equity-news/by-news-type/deal-news/creation-investments-leads-10m-grameen-equity-financing.html

 

http://blogs.ft.com/beyond-brics/2013/03/08/india-hint-of-recovery-in-microfinance/#axzz2N14VCTtL

Impact Investing Creates Template for Responsible Capitalism

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Posted: 02/14/2012 10:13 am

 A microfinance lender in Tamil Nadu, a rice farm in Tanzania, a housing project in Chiapas and a rural development bank in Pakistan: all these projects are recipients of impact investment capital, committed to “doing good while doing well,” in one of the fastest growing investment trends of the past two decades.

Impact investing has developed out of traditional philanthropy in an effort to find solutions that allow investors to make profitable investments that can also address social and environmental challenges. Impact investors seek to combine the seemingly conflicting aims of investing for maximum risk-adjusted returns and contributing to social good. The level of return expectation varies according to the type of investor. Individuals or foundations tend to prioritize social impact over financial return and are willing to forgo the latter if the social goal is clearly advanced.

By contrast, institutional investors, especially those like pension funds which owe a fiduciary duty to their beneficiaries, usually look for a return that is at least competitive with traditional asset classes. As a result, investment risk appetite will also differ. Most impact investing takes place via private transactions with small businesses, often operating in emerging markets where poor governance and inadequate information flow may add greatly to the risk of the projects.

Investors in these companies will look for a commensurate financial return, as well as measurable social impact on the ground. While some prefer the terms venture philanthropy or social investment, impact investing represents a distinct style of responsible capitalism which has become particularly popular among foundations, endowments and high net worth individual investors.

Industry pioneers, such as the $3 billion Rockefeller Foundation in New York, see impact investing as a way to find solutions to poverty reduction and other social problems; but more importantly to access the private sector capital markets that ultimately hold the wealth required to scale up these solutions globally. While charitable donations by high net worth individuals were down 35 per cent in 2010, according to Bank of America Merrill Lynch and Indiana University, the impact investing sector is expecting steady growth.

In 2010, JP Morgan forecast potential impact investment capital of $400 billion to $1 trillion globally over the next ten years. Much recent activity in impact investing has been effectively direct investing, with the typical venture capital approach sometimes supplemented by grants and capacity building. The Omidyar Network, for example, launched in 2004 by eBay founder Pierre Omidyar, “has invested $450 million in equity and grants to promote microfinance, entrepreneurship, technology and government transparency, mostly in developing countries.”

Investment managers such as the Acumen Fund and the Capricorn Investment Group, which manages the Skoll Foundation’s multi-billion dollar portfolio, are active in emerging markets across Asia, Africa and Latin America.

Impact investing does present significant challenges to investors. It can be difficult to obtain basic investment information in emerging markets, and equally hard to monitor and track the performance of small companies and projects. This is compounded by the complexity of trying to quantify the non-financial “impact” of investments: it is not that simple to compare the social benefits of investing in, for example, vaccinations in Ghana versus cleaner burning cooking stoves in India.To help donors and investors tackle this issue, the Global Impact Investing Network (GIIN), a non-profit company supported by the Rockefeller Foundation, has worked with B Lab to develop industry infrastructure aimed at improving information flow and creating a more efficient marketplace.

GIIN’s Impact Reporting and Investment Standards provides a standardized language and framework for measuring the social and environmental performance of impact investments, including a list of nearly 400 metrics, such as customer poverty level and access to education. B Lab has created a similar tool for institutional investors, with support from ratings agency Moody’s and several financial companies.

Improved transparency, the creation of analytical tools for investors and the beginnings of a clear market structure are encouraging mainstream institutional investors, such as pension funds, to look at impact investing as a credible asset class. For example, TIAA-CREF, a huge US pension fund, has committed approximately $650 million to impact investing, mostly to low income housing; and American insurance company Prudential is another significant player, with about $400 million in impact investments.

As more funds are allocated to this sector, the impact investing industry is evolving rapidly to meet the demands of a wide variety of investors. Traditional debt and equity are being supplemented by more innovative structures, such as the Social Impact Bond issued in the UK, where return is linked to measures of social performance such as reduction in prisoner reoffending rates.

Alexandra Tracy is chairman of ASrIA, the Association for Responsible Investment in Asia

This article was originally featured in a special report on Sustainable Investments, produced by Raconteur Media and distributed in The Times (UK)

Under-banked willing to pay for BC services in India – MicroSave Report

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Under-banked willing to pay for BC services – MicroSave Report

Microfinance Focus, May 24, 2011: According to a recent study undertaken by MicroSave, there is a significant demand from under-banked clients for more convenient banking facilities and over 70 percent of the study respondents expressed their willingness to pay for Business Correspondent (BC) services.

Sighting various difficulties in bank transactions which includes travel cost, literacy barriers and unhelpful staff, close to 70% of study participants indicate willingness to pay for the local and more personalised convenience of business correspondents. Almost half seem to prefer a percentage model (1-2% of the transaction total), while close to 30% opt for flat fees.

MicroSave, one of the leading research and technical assistance providers for financial services conducted a study – ‘Cost and Willingness to Pay’ (CWP) in the states of Rajasthan, Tamil Nadu and Uttar Pradesh on the services business correspondents provide in rural areas and the willingness of customers to pay for such services.

The CWP study is the second in a series of research studies that are being conducted by MicroSave and funded by Omidyar Network to support financial inclusion agenda in India. The first report of the series on Dormancy in No Frill Accounts (NFA) has been published.

According to the report, many of the respondents accept the rationale behind charging a small fee for withdrawal and account opening if branch visits are eliminated. Although price sensitivity is high among customers, they are well aware of how banks make money. No one thinks fees are acceptable for savings deposits or “maintenance”, particularly for no frills accounts (NFAs) with no ATM cards and no cheques

The report claims that building customer trust in the BC, in the security of their payments and deposits, in the new system will take time. Adoption will be cautious at first and full use of the various bank services will depend on the efficacy and reliability of initial transactions.

While 27 banks have implemented the BC model and some 14 million new accounts have been opened, many with the assistance of technology service providers, the adoption has been disappointing and the overall viability of the BC model is currently under review, the report says.

A recent multinational CGAP study on the larger issue of agent networks reveals that daily net profits for Indian agents range from $0.69 to $3.99. Costs, including insurance, can be as high as $0.99.

Persuading prospective customers, particularly poor ones, that recurring deposits, insurance premiums, or even mobile loan payments make sense requires time, patience, sophisticated sales skills, and full bank support. However most BCs, have few of the above, says the report.

The report furthers highlights that close to 13 percent of the respondents claimed that they were unwilling to pay for BC services arguing that all deposits and withdrawals at the bank are free, and BC services should be as well.

Customers are of the opinion that since banks will earn some money from their deposits, there should be no charges for their personal capital investment or for new account openings.

Trusting a local business correspondent, even one authorised by a bank is a crucial concern for customers and they also worry that deposits in outstanding credit situations, with the shop owner or the BC, may prove uncomfortable and difficult to negotiate.

Since the major requirement for most rural poor is available credit to help ease difficult agricultural cycles, and to pay for education, health care, marriages, funerals, and emergencies, BCs are expected to have more tailored offerings for villagers’ needs.

The report claims that recurring deposits and the favourable terms of “commitment savings” are becoming more widely known – and appealing. BCs who can offer these and other options that fulfil their customer needs will fare better than those who have only a limited suite of services.

Despite of an unbanked population of over 400 million in India, most bank branches are reluctant in serving this clientele. A recent report by the Confederation of Indian Industry and Boston Consulting Group on efficient, low-cost distribution networks for these marginal customers does not encourage the branch model.

With an estimated cost-income ratio of 10-12, already well above any sustainable norm, Indian banks would need approximately Rs.200 billion to extend their branch networks to include all the currently excluded households. Previously, microfinance institutions (MFIs) have helped share costs and responsibilities for these customers, but their role remains uncertain moving forward.

To help address limited branch networks in rural areas, Reserve Bank of India introduced new guidelines in the year 2006 which included Business Correspondents as bank intermediaries to encourage savings and offset the heavy emphasis at the time on credit and loans. More recently, the RBI has eased restrictions for mobile network operators (MNOs) and other for-profit companies, allowing them to become more directly involved in the BC model and mobile money initiatives.