Mumbai: Fusion Microfinance Pvt. Ltd has raised ₹ 520 crore in a funding round led by Warburg Pincus LLC, marking the US private equity firm’s first investment in India’s microfinance sector. Existing impact investor Creation Investments also took part in the round, the non-bank lender said in a statement on Tuesday.
The latest round provided an exit to Fusion’s early investors—Belgium-based Incofin, the Norwegian Microfinance Initiative, Small Industries Development Bank of India and Belgian Investment Company for Developing Countries.
“This investment would support our endeavour to develop into one of India’s most preferred companies in the financial inclusion space. Since inception, Fusion has done significant work in financial inclusion, women empowerment and entrepreneurship," said Devesh Sachdev, founder and chief executive of Fusion Microfinance in a telephone interview.
Launched in 2010, Fusion has a presence in 14 states—including Uttar Pradesh, Madhya Pradesh, Uttarakhand, Delhi, Haryana, Bihar, Jharkhand, Odisha, Punjab, Chhattisgarh and Maharashtra. Its clients are exclusively women in rural and semi-urban areas.
Sachdev said Fusion has a loan book of ₹ 2,200 crore, which it is looking to grow to ₹ 3,700 crore by March 2020. While it made a loss last fiscal due to the effects of demonetization, it swung to a net profit of ₹ 33 crore for the half-year ended 30 September this year, Sachdev added. Prior to the current round, Fusion raised ₹ 80 crore from Creation Investments, Oikocredit and GAWA Capital in February. The microfinance company raised ₹ 162 crore in 2016 in a round led by Creation Investments, a US-based private equity firm. For Warburg, this marks its first investment in the microfinance sector in India.
“We have been looking to invest in microfinance for a year and a half now, and saw a bunch of well managed microfinance institutions (MFIs) emerge after demonetization," said Narendra Ostawal, managing director of Warburg Pincus. The private equity (PE) firm will look to back Fusion to become a leader and lead consolidation in the financial inclusion space, he added.
Warburg, over the years, has invested in financial services companies such as Capital First Ltd, AU Small Finance Bank Ltd and ICICI Lombard General Insurance Co. Ltd.
In spite of a liquidity crisis for lenders triggered by defaults at Infrastructure Leasing and Financial Services (IL&FS) group, PE interest in lending firms has remained robust with several non-banking financial companies (NBFCs), such as Veritas Finance, Ess Kay Fincorp and Kogta Financial, raising PE capital in the last couple of months.
“We are very bullish on the rural India story, which is aided by the fact that with a scarcity of capacity, NBFCs offer an amazing opportunity for investors," Ostawal of Warburg Pincus said.
Fusion’s loan book is currently growing at 74% year-on-year, primarily because of a favourable base effect owing to its relatively small size, Sachdev said. He expects the growth rate to stabilize to 30-30% annually by 2020.
The lender currently has over 500 branches and employs over 4,000 people. Next year, Sachdev said, the firm will hire 1,000 more people and open 100 more branches.