Bangalore / Mumbai: Buoyed by the warm response to the $350 million (Rs1,628 crore) public issue of the country’s largest microfinance firm SKS Microfinance Ltd late July, two more prominent microfinance firms— Share Microfin Ltd and Spandana Sphoorty Financial Ltd—have expedited their listing plans, said people familiar with the moves.
Microfinance institutions (MFIs) lend small sums to the poor, mainly to people in remote areas and without bank accounts. As of mid-2008, the requirement for such loans was Rs2.4 trillion while the available credit was around Rs20,000 crore, according to the Union finance ministry.
To scale up fast, MFIs need more capital than they can garner from investors such as private equity (PE) funds. A share sale provides just this.
Hyderabad-based Share Microfin is merging with another MFI called Asmitha Microfin Ltd and will look at going public soon after, said an investor in Share Microfin, who spoke on the condition of anonymity.
Another investor confirmed that Share would indeed go for an initial share sale.
The merger will propel the new firm to one of the top three spots among Indian MFIs, giving it the scale needed to go public.
Udaia Kumar’s Share Microfin has more than 30.6 million clients and total assets of Rs2,595 crore. His wife Vidya Sravanthi runs Asmitha, which has 1.8 million clients and a loan book of Rs1,700 crore.
Asmitha’s managing director Sravanthi said talks are on with her firm’s board members and investors on a merger with Share Microfin or another MFI. “There are so many people and stakeholders who need to agree with it,” she said.
Replying to an email query on the likely merger, Kumar replied: “There is officially nothing that can be shared regarding this matter as of now.”
Currently India’s second largest MFI, Spandana, which has at least 4.54 million borrowers, has been in the market for raising capital since the latter half of 2009. It is now considering a public listing.
“We are a fairly large business with AUM (assets under management) of over Rs4,200 crore and we have all the pre-requisites to take the company public,” said G. Padmaja Reddy, founder and managing director, Spandana, in an email.
Late last year, Spandana proposed to raise nearly Rs300 crore from Temasek Holdings Pvt. Ltd, the Singapore government’s investment arm.
The deal fell through earlier this year on valuation differences, said an investment banker with direct knowledge of the deal. “It’s unlikely that the PE deal will happen again, the reason being SKS’ IPO (initial public offering). Once SKS’ valuations were out in the market, they (Spandana) naturally wanted a higher price.”
Investors and people in the microfinance business say that though the SKS’ IPO garnered a huge response, only a few MFIs have the scale required to go public. Profitability is one of the biggest challenges. Not more than 15% of the 230-plus MFIs in India are profitable, according to Sa-Dhan, an association of MFIs.
“Taking these firms public is not difficult. Having a successful IPO will be difficult,” said Venky Natarajan, managing director, Lok Advisory Services Pvt. Ltd. His firm does due diligence for investments by Lok Capital Llc, a Mauritius-based venture capital firm that funds MFIs in India. Lok Capital is an investor in Spandana.
Natarajan said four of the eight MFIs in Lok Capital’s portfolio, including Spandana, are deliberating going public over the next two years.