Two lenders have raised equity capital in March alone, while at least another three deals are in the pipeline, even as the average return on equity for the pure-play microfinance lenders turned negative in the third quarter of FY25.
Proparco, a French development finance institution, has invested 12.7 million euro (around Rs 115 crore) to buy about 19.5% stake in Ahmedabad-headquartered Pahal Financial Services. Gawa Capital, an existing investor in Pahal, has invested another 3.5 million euro (about Rs 32 crore) to maintain its stake to 21.3%.
In a separate development, Credent Global Finance, a BSE listed financial services firm, has acquired a 25% stake in Kolkata-based Janakalyan Financial Services.
Meanwhile, Warburg Pincus is in the final lap of infusing fresh capital into Fusion Finance through a Rs 800-crore rights issue.
“Investments coming to the microfinance sector shows its fundamental strength. Investors must have gained confidence as the sector has shown resilience and demonstrated that it can wither away any crisis,” said Jiji Mammen, executive director at Sa-Dhan, a self-regulator for the sector.”This is a good time to invest as the valuation is lower. It is a very positive development and will give confidence to other lenders and investors to put their money too.”Listed micro lenders like Fusion and Spandana Sphoorty saw their share price tumbling in excess of 70% in the past one year after showing high asset quality stress and net quarterly losses. The overheating of the sector, and high indebtedness of borrowers, led to rise in default straining lenders’ financials.
CreditAccess Grameen, Muthoot Microfin and Satin Creditcare Network lost 33%, 42% and 37% in market capitalisation respectively.
The average return on equity for all NBFC-MFIs taken together stood at a negative 1.95% in the third quarter against 4.99% in the second quarter.
The investments in Pahal and Janakalyan were concluded in the last week of March, multiple people familiar with the matter said.
“This funding will play a pivotal role in accelerating our growth, expanding our geographic presence, and strengthening our ability to serve more micro-entrepreneurs, particularly women, who are the backbone of rural economies,” Kartik Mehta and Purvi Bhavsar, co-founders of Pahal said in a joint statement.
Unitus Capital was the financial advisor to Pahal Financial Services for this deals. Pahals’ assets under management stood at around Rs 2000 crore.
Credent Global picked the stake in Janakalyan through its wholly-owned subsidiary Credent Investment Pvt. Ltd.
“With Credent’s backing, we can further expand our reach and provide financial services to the underserved communities,” Janakalyan co-founder cum managing director Alok Biswas said. Janakalyan’s AUM stood at Rs 270 crore.
Fusion, which has decided to float the rights issue of shares on April 15, has received commitment from Warburg and Chicago-based Creation Investments, people in the know said. Warburg holds about 33% in the Fusion through its affiliate Honey Rose Investment while Creation holds about 20%. The issue price was fixed at Rs 131 per share including a premium of Rs 121 per share.
Among companies currently in talks with investors also is Spandana Sphoorty Financial, which is looking to raise equity in the first quarter of the new fiscal. It got board approval for raising up to Rs 750 crore.
On the debt side, CreditAccess Grameen and Satin Creditcare Network have recently mopped up $50 million and $100 million respectively. CreditAccess raised it in external commercial borrowing from International Finance Corporation. Satin raised the debt from Standard Chartered Bank and six Sri Lankan lenders.
