Microfinance institutions plan to take IPO route to fund growth plans

Representational image of IPO
After nearly a decade, microfinance institutions (MFIs) are again looking at raising funds through initial public offerings (IPOs) of equity. 

The IPO of CreditAccess Grameen, a Bengaluru-based MFI, hit the markets on Wednesday. Those of at least two others, Muthoot Microfin and Spandana Sphoorty, are in the pipeline. Another entity, Arohan, is in the process of deciding whether or not to raise money through an IPO.  

Over the past 18 months, most MFIs have been recovering from the after-effects of demonetisation and government-mandated debt waivers. However, with the majority of non-performing loans written off, MFIs are again looking at growing their portfolios. Also, an IPO is an exit route for some of the private equity investors in MFIs.

After the IPO of Bharat Financial Inclusion (formerly known as SKS) in 2010, there were hardly any new IPOs in the segment, barring those of three small finance banks (SFBs) and of Satin Creditcare, a Delhi-based MFI. 

CreditAccess Grameen is hoping to raise about Rs 11.3 billion through its IPO. There would be a new issue worth Rs 6.3 billion and an offer for sale (OFS) worth Rs 5.01 billion, the latter offering a partial exit to its investor, Credit Access Asia NV. “The IPO will help us meet the long-term capital requirement; beyond a point, investors cannot put in money,” said Udaya Kumar, managing director (MD). 

Muthoot Microfin, part of the Muthoot Pappachan group, has filed a draft prospectus for an IPO. It aims to raise about Rs 10 billion, say sources. There would be a new issue of up to Rs 5 billion and an OFS of up to 16,310,072 equity shares.

Hyderabad-based Spandana, once one of the worst-hit MFIs due to the crisis in the sector around 2010, plans to raise about Rs 10 billion through an IPO. In 2010, its earlier plan in this regard had to be shelved after the crisis in the sector. 

Padmaja Reddy, its MD, would not comment on the matter. According to the draft prospectus, it has filed, the plan is a new issue for about Rs 4 billion and an OFS of up to 13,146,595 equity shares.

West Bengal-based Arohan is looking at options, including an IPO, said Manoj Kumar Nambiar, its MD.  

The business of non-bank finance corporation MFIs (including SFBs) has grown in recent years. Their gross loan portfolio rose at a five-year compounded annual rate of 42 per cent to Rs 684 billion as of end-March 2017, according to data from ratings agency CRISIL. Eight of the 10 entities awarded an SFB licence were MFIs. 

“As non-listed entities, equity in MFIs would come mostly from development institutions. An IPO helps to broaden the investor base,” says H P Singh, founder and MD of Satin Creditcare, which got listed about two years earlier.

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