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Home >Industry >Banking >Janalakshmi Financial Services gets $50 million from UK’s CDC

Mumbai: CDC Group Plc, the UK government’s development finance institution, has invested $50 million (approximately 330 crore) as tier II capital in microfinance institution Janalakshmi Financial Services Pvt. Ltd.

Established in 2006, Janalakshmi is present in over 170 cities across 19 states, focusing on urban poor, and has outstanding loans and advances of almost 6,000 crore as of September 2015.

“This is a significant transaction that enables Janalakshmi to deepen its reach as well as provide a broader range of products and services to its customers. The institution is poised to make an even bigger social impact with an in-principle approval from the RBI (Reserve Bank of India) to set up a small finance bank," said Srini Nagarajan, CDC regional director for South Asia.

The microfinance institution’s core product is small batch loans (SB) that are disbursed to joint lending groups. However, the company also provides individual loans to those who have demonstrated a successful credit track record as well as loans to micro and small and medium enterprises (MSMEs). Janalakshmi also distributes micro pensions and savings accounts on behalf of other financial institutions.

Unlike tier I capital, which is counted as core capital for banks, funds raised through tier II instruments boost the secondary capital of a bank. The core capital of a bank consists of equity, while secondary capital is made up of debt instruments and reserves.

In 2014, Janalakshmi had raised almost 600 crore from global private equity major TPG Capital. TPG Capital holds almost 16% in the company. Other foreign investors in Janalakshmi include Citi Venture Capital International, Treeline Asia and Caspian Impact Investment Advisers.

On 16 September, the RBI issued small finance bank licences to Ujjivan Financial Services, Equitas Holdings Ltd, Janalakshmi Financial Services Pvt. Ltd, Au Financiers (India) Ltd, Capital Local Area Bank Ltd, Disha Microfin Pvt. Ltd, ESAF Microfinance and Investments Pvt. Ltd, RGVN (North East) Microfinance Ltd, Suryoday Micro Finance Pvt. Ltd and Utkarsh Micro Finance Pvt. Ltd. Eight of the 10 are microlenders. Many have significant foreign holdings because of early investments from private equity funds and multilateral institutions and will have to comply with the RBI’s rules to convert into small finance banks.

Apart from Janalakshmi, CDC is also an investor in Equitas Holdings and Ujjivan Financial Services. Both Equitas and Ujjivan have filed draft initial public offering (IPO) papers with the markets regulator Securities and Exchange Board of India to raise almost 2,000 crore and 1,500 crore respectively.

The move is aimed at bringing down the foreign shareholding in these companies to within 49% in accordance with RBI norms.

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