Mumbai: Global alternative asset firm TPG said on Tuesday it has led a $100 million (Rs685 crore) investment round in non-bank lender Five Star Business Finance Ltd. The round also saw participation from existing investors Norwest Venture Partners, an investment fund managed by Morgan Stanley, and Sequoia Capital. Five Star’s first institutional investor, Matrix Partners, continues to stay invested in the company, TPG said. It did not disclose additional terms of the transaction.

Five Star is a non-bank financial company (NBFC) providing loans to nearly 40,000 customers. The company focuses on lending to the under-banked population, which typically lacks the financial records necessary to participate in the organized financial sector. Five Star’s customers include small business owners such as single-shop retailers such as vegetable vendors, provision stores, food retailers and self-employed individuals. The company claims to be managing approximately 1,220 crore in assets across more than 150 branches.

“Our 30 years of experience as a hands-on partner to our customers has led us to establish a business model that directly addresses the needs and risks unique to their businesses," said D. Lakshmipathy, chairman and managing director, Five Star.

“For many years, small enterprises across India have struggled to gain access to traditional financial systems due to their inability to meet formal requirements for credit. In South India and across the country, demand for funding continues to significantly outpace supply," said Puneet Bhatia, managing partner at TPG Capital Asia. “Five Star is bridging the funding gap for small business owners, providing them with tailored, risk-conscious financial solutions. We are impressed by the company’s differentiated business model and skilled team, and are pleased to partner with them in their next stage of growth," said Gaurav Trehan, partner at TPG Capital Asia.

TPG’s investment in Five Star builds on the firm’s focus in the financial services space across Asia. It has previously invested in companies such as BFI Finance, BTPN, Jana Small Finance Bank, Shenzen Development Bank, Shriram City Union Finance, Shriram Transport Finance, and Union Bank of Colombo.

According to financial services experts, the micro and small enterprise and self-employed segments offer a large growth opportunity for NBFCs.

“The MSME and self -employed segments are largely underbanked or unbanked. NBFCs catering to these segments can easily clock 20-30% growth in their loan book on an annual basis. Banks have a limited bandwidth to cater to such customers because of administrative difficulties and would prefer lending to NBFCs catering to such customers for onward lending purposes," said Mitul Budhbhatti, associate director at Care Ratings.

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