IntelleCash acquires Arohan MFI
Deal marks first major acquisition in microfinance sector since industry was hit by a crisis in late 2010

(Hindustan Times)
Mumbai: IntelleCash Microfinance Network Co. Pvt. Ltd, a subsidiary of investment banking services and advisory firm Intellectual Capital Advisory Services Pvt. Ltd (Intellecap), has taken a controlling stake in Kolkata-based microlender Arohan Financial Services Pvt. Ltd through a series of complex transactions for 52 crore.
It’s the first sizeable acquisition in India’s microfinance sector since it ran into a crisis after Andhra Pradesh in October 2010 passed a law that restricted the operations of microlenders in the state, which then accounted for one-quarter of the industry’s assets.
Analysts said the deal may signal the start of consolidation among microfinance institutions (MFIs), which have been weighed down by bad loans and seen funding dry up.
Mumbai-based IntelleCash has bought a 56% stake in Arohan, said Anurag Agrawal, co-founder, chief operating officer and director of Intellecap.
Arohan’s net worth is estimated at ₹ 40 crore and loan book at ₹ 50 crore. After the advent of the crisis, Arohan’s loan book shrank from ₹ 130 crore to as low as ₹ 40 crore at one point. It has 100,000 borrowers across three states in eastern India—West Bengal, Bihar and Assam.
Aavishkaar Goodwell II, a microfinance fund, first infused money into IntelleCash Microfinance Network, which in turn invested it in Arohan. Besides, IntelleCash Microfinance Network bought the stake of an existing investor, Bellwether Microfinance Fund, and made a fresh investment by way of expanding Arohan’s equity.
The India Financial Inclusion Fund, and the Michael and Susan Dell Foundation continue to hold about a 10% stake each in the company. Aavishkaar holds a 16% stake in Arohan and the rest is being held by a group of small investors.
Senior industry officials said a cash crunch pushed Arohan into the deal. “This would not have probably happened had the situation been less severe. We are not yet through with the implications of this crisis. There will be some more residual changes," said Mathew Titus, executive director at industry body Sa-Dhan.
The Indian microfinance industry has halved to about ₹ 15,000 crore in past two years in the aftermath of the passage of the Andhra Pradesh Microfinance Institutions (Regulation of Moneylending) Act, 2010.
The Act barred MFIs— which give small loans to low-income borrowers at 24-36% and source money primarily from commercial banks—from weekly loan collections and made it mandatory for them to secure government approval for every second loan given to an existing borrower.
Such restrictions, coupled with a state-wide campaign by a political party asking borrowers not to repay MFI loans, were followed by a wave of defaults in Andhra Pradesh, India’s biggest market for microcredit.
Banks, too, stopped funding MFIs. Bank lending to microcredit, which includes loans to self-help groups, fell to ₹ 21,120 crore in July 2012 from ₹ 24,180 crore in July 2011.
Analysts said the acquisition could mark the beginning of consolidation in the sector that’s struggling to survive amid mounting bad loans, and a lack of funding from banks and private investors.
“There would be consolidation, which would help both MFIs and borrowers. This could happen in the near future, especially among MFIs based in Andhra Pradesh," said Kishore Kumar Puli, managing director (MD) and chief executive officer (CEO) of Trident Microfin Pvt. Ltd and head of the Andhra Pradesh chapter of another industry lobby, Micorfinance Institution Network.
Trident is one of many MFIs that had to restructure loans. It had assets worth ₹ 140 crore in July and 210,000 customers.
“This is the inevitable fallout of the crisis. There is a degree of consolidation that will have to happen. There are other MFIs too on the brink of closure and we will see more such mergers," said Sanjay Sinha, MD of Micro-Credit Ratings International Ltd.
Shubhankar Sengupta, CEO of Arohan, said his firm had to bear the brunt of the crisis as banks had stopped funding. With the firm continuing to repay old loans and no fresh money coming in, its loan book has shrunk drastically, he added.
“Banks were favouring mostly large MFIs due to the perception that Bengal is a high-risk market. This deal will give us stability and growth in long term," Sengupta said. Incidentally, another West Bengal-based MFI, Bandhan Financial Services Pvt. Ltd, has been growing at a rapid pace with an asset base of around ₹ 3,000 crore.
Arohan wants to double its asset base to ₹ 100 crore by next March, Sengupta said.
According to Agrawal of Intellecap, the Arohan board will be reconstituted with IntelleCash getting three-four board seats.
Sengupta will continue to remain CEO of Arohan.
Manoj Nambiar, MD and CEO of IntelleCash, will join the board and take over as MD.
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