IPO-linked merger microfinance plans secure lending arm for SMEs

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IPO Fusion Microfinance, which piloted a book of secured loans focused on small businesses, is launching it commercially from next month as it seeks to bolster its secured portfolio and accelerate growth.


Microfinance usually consists of small loans, up to Rs 50,000 per borrower and is only lent to women through their self help groups and the loan is fully unsecured/collateral free.


On the other hand, New Delhi-based Fusion, backed by global private equity giant Warburg Pincus and which is the largest in terms of customer base and second in terms of loan portfolio, wants to run a secure but only business for small businesses, which should not be run solely by women.


Merger’s initial Rs 1,100 crore share sale – Rs 600 crore in sale of fresh shares and the rest via a sale offer by existing promoter families and outside investors – opens next Wednesday at a range price of Rs 350-368/share.


Those selling shares in the SFO are Devesh Sachdev (Founder and Chairman of the MFI), his wife Mini Sachdev, Honey Rose Investment and two funds from Creation Investments Fusion, Dutch impact investor Oikocredit Ecumenical Development Co- operative Society and Global Financial Inclusion Fund. Of these, Honey Rose and Creation Investments are funds held by Warburg Pincus which entered the MFI in 2018 with funding of Rs 520 crore.


“We have been lending to MSMEs for some time now and currently have assets of Rs 200 crore under management. This is a fully secured loan and we provide up to Rs 3.25 lakh to borrowers, most of whom are from existing borrowers. After the IPO, we want to expand this book and will be separated as a separate NBFC but will remain part of the parent Fusion,” Sachdev told PTI over the weekend.


“So far we have used our own capital for subsequent loans, but once we have separately launched the business, we will borrow separately from banks, where we will obtain funds at a slightly cheaper rate, because the banks are only willing to lend/co-loan to MSMEs for one and for the other it is a fully secure book,” he added.


Currently, they lend through this model at the MFI rate which is over 22% on which the lender earns a margin of over 11% as their financing cost is around 10.10%.


Maybe once we grow up we can lower the rates for those borrowers because we will also be borrowing separately for that from the banks, he said.


Fusion’s current loan portfolio is just under Rs 7,400 crore – as of June 2022 in an industry that has an AUM of $35 billion – of which just over Rs 200 crore is MSME pound, it said. he declares. Fusion has nearly 970 branches spread across 377 districts in 19 states, but most of them are concentrated in Bihar and UP, and employs nearly 10,000 people.


Fusion has one of the best asset qualities in the industry with a GPA of 3.67% and a NNPA of 1.35% and a provision coverage ratio of 96, as of June.


The MSME vertical already has 70 branches run by a team of 400 members and this will grow as we grow, he said, adding that he already has a strong customer base of 6,000, he said. -he declares.


As for the asset quality of this vertical, Sachdev said it was as good as the MFIs book, with the net NPA at only 1.29% as a loan to value (LTV) against the collateral that might be the store/factory/other assets, is only 65-70%.


The very crowded MFI space is led by CreditAccess Grameen (which is also the largest in terms of AUM), Fusion, Asirvad Microfinance, Muthoot Microfin, Annapurna Finance, Samasta Microfinance, Satin Creditcare Network, Svatantra Microfin, Spandana Sphoorty Financial and Belstar Microfinance.


Pre-offer Honey Rose Investment (Warburg) directly owns 48.65% of the company and the two funds Creation Investments Fusion, Oikocredit Ecumenical Development and Global Financial Inclusion Fund own an additional 36.56% and the Sachdevs 8.21%, which brings the total to 85.21 percent. After the issuance, Warburg will cut by 12% and Sachdevs by less than 1% to increase its stake to 7.5%.

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