Microfinance Focus, July 30, 2010: The initial public offer of SKS Microfinance was subscribed 8.64 times at the end of its third day according to the latest data available at NSE. The IPO received a total bid for 118994988 shares against the total issue size of 13769095 shares.
It received an overwhelming support from qualified institutional buyers who oversubscribed it 3.6 times as per the BSE cumulative demand schedule. However Non-Institutional investors and retail individual investors subscribed 0.056 times and 0.050 times respectively.
Today was the last day for QIBs to subscribe for the issue. The issue will remain open till August 02 for non-institutional and retail investors. The price band for the same is between Rs 850 and Rs 985 per equity share.
SKS Microfinace has already received commitment for Rs 300 crore (USD 64 million) from anchor investors as against allocation of 30 lakh shares at Rs 985 per share. The book running lead managers to the Issue are Kotak Mahindra Capital Company Limited, Citigroup Global Markets India Private Limited and Credit Suisse Securities (India) Private Limited.
Microfinance Focus, July 30, 2010: As per the latest data available on the BSE cumulative demand schedule, qualified institutional buyers (QIBs) have oversubscribed SKS microfinance IPO 3.6 times. For the total issue size of 1.37 crores of equity shares buyers bided for 2.5 crores of shares, subscribing it 1.8 times.
Today was the last day for QIBs to subscribe for the issue. The issue will remain open till August 02 for non-institutional and retail investors. The price band for the same is between Rs 850 and Rs 985 per equity share.
SKS Microfinace has already received commitment for Rs 300 crore (USD 64 million) from anchor investors as against allocation of 30 lakh shares at Rs 985 per share. The book running lead managers to the Issue are Kotak Mahindra Capital Company Limited, Citigroup Global Markets India Private Limited and Credit Suisse Securities (India) Private Limited.
Microfinance Focus, July, 30, 2010: Matrix Financial Consultants, is a Mumbai based investment banking firm offering debt syndication, equity placement and financial restructuring to an array of clients from industries such as microfinance, power, hotels and pharmaceuticals.
It recently raised INR 10 crore of long term debt for Future Financial Services Ltd (FFSL) from a leading Mumbai based NBFC. It also concluded two debt syndication transactions worth a total of INR 75 crores for SHARE Microfin from Andhra Bank and State Bank of Indore in April this year and raised INR 50 crores of long term debt from Bank of Baroda earlier this year.
In an interview with Microfinance Focus, Mr. Gautam Doshi, the founder and CEO of Matrix spoke about the company’s participation and the future of debt financing in the robust microfinance sector. He has worked for Antfactory, a $540 million private equity fund set up by Citigroup, Allianz & JH Whitney in London. He also worked for Credit Suisse in Investment Banking in London, Indocean JP Morgan Partners.
Microfinance Focus: Can you share with us the factors that made you enter the microfinance space?
Gautam Doshi: We began working with the microfinance industry approximately two years ago as we felt that this industry was likely to grow significantly over the coming years and would require significant amounts of capital, both debt and equity. We first met with Asmitha Microfin and thereafter with Share Microfin Ltd. They gave us the opportunity to help them raise debt funding. In the last financial year we raised about INR 550 crores for SHARE Microfinance across various banks and about INR 350 crores for Asmitha Microfinance. We are also working with several other microfinance companies currently and propose to close transactions for them in the coming months.
Microfinance Focus: Almost every month you are doing a debt syndication transaction for an MFI but we don’t see any equity placements. Are there any reasons behind this trend?
Gautam Doshi: Equity has not been much of a challenge for the microfinance industry. It began with SKS raising PE money and over time, that has played out very well for its investors. Thus, the industry has attracted significant amounts of PE capital. Many microfinance companies are directly being approached by PE investors so that’s not an area where we have been able to add much value. Debt on the other hand has been more of a challenge for the industry. All the microfinance institutions are growing at over 100% a year. Every time they raise 100 rupees of equity they can leverage that 5-6 times over by way of debt. So in our view, the larger opportunity remains on the debt side and that is where we have focussed our efforts.
Microfinance Focus: Are there any changes in the policies of banks in terms of lending to MFIs
Gautam Doshi: Not really. I think initially people were not aware of the industry so there was time spent on explaining the benefits of lending to microfinance companies. That stage is over now and most banks are comfortable in lending to microfinance companies. There is a bias towards lending to the larger MFIs and therefore the smaller ones continue to find it a hard to raise funding.
Microfinance Focus: What are some of the limitations MFIs are bound with while exploring various alternatives of debt financing?
Gautam Doshi: There have not been too many limitations. Banks have been getting comfortable and so MFI’s are able to access capital. They were able to grow so well because they have been able to access capital. I think the larger ones like SKS, Spandana and SHARE Microfinance are ready to tap the debt capital market by way of issuing Commercial Papers. They have already started placing NCDs.
Microfinance Focus: There is a growing concern among the industry experts that RBI may change the priority sector lending policy and microfinance sector will no longer remain a beneficiary?
Gautam Doshi: In my view nothing is going to change. I think overall, the RBI is a comfortable with the performance of the microfinance industry, so I don’t think there will be any change in removing microfinance from the priority sector limits. There have been certain instances, where people have talked about putting a cap on the lending rate, but I don’t anticipate that either. The operating cost of the industry is close to 9-10% of the total cost and they access money at roughly 11-13 % from the banks. So the total cost works out to about 21-22%, and they lend out at roughly 25-26% so I don’t anticipate RBI putting any lending caps.
Microfinance Focus, July 30, 2010: International Finance Corporation, the financial arm of World Bank and India’s Federal Bank have joined hands to enhance support to small and medium enterprises and help boost international trade opportunities. IFC will be providing trade financing of up to $25 million to India’s Federal Bank and the facility will give risk coverage and access to a global network that will help grow the bank’s trade finance business.
The network facilitates transactions in challenging markets, promotes competitive financing, and builds bank relationships with new institutions, thereby reducing risk and enabling more smaller businesses to engage in trade. Federal Bank is the second Indian bank supported under IFC’s Global Trade Finance Program, following Kotak Mahindra Bank.
P.C. John, Executive Director, Federal Bank, said: “The trade facility from our long-term partner, IFC, will improve Federal’s ability to support smaller businesses by offering short-term foreign-currency trade finance products.”
“IFC’s trade finance support to Federal Bank reflects our commitment to help the corporate and smaller business sectors increase their share of global trade by expanding the availability of trade finance,” said Paolo M. Martelli, IFC Regional Director for South Asia.
IFC launched the Global Trade Finance Program in October 2005 to facilitate an increase in developing countries’ share of global trade and promote flows of goods and services between these nations. The program now has a network of more than 300 participating banks from around the world. The trade finance program issued $3.46 billion in guarantees to support trade with emerging markets in fiscal year 2010. The trade facilitation program has helped to promote recovery in trade, which was an early casualty of the global economic crisis.
Federal Bank is a leading private sector bank in India with a dominant presence in the state of Kerala and branches across the country. Through organic growth and by acquisition, the bank is expanding its geographical coverage. Federal Bank also is prioritizing financing for smaller businesses.
Microfinance Focus, July 30, 2010: New Zealand based turnkey provider of Wireless and Wireless Broadband communication solutions across the Middle East, Africa, Asia and Oceania, Mobilis Networks Limited has released MobilisMoney, the Mobilis Mobile Money Transaction Platform, says a press release.
MobilisMoney utilises USSD and SMS to allow an Operator’s subscribers to send money via mobile to any other mobile instantly, securely and without the need for a bank account. With MobilisMoney subscribers can transfer money to other subscribers, deposit and withdrawal money from authorised agents, pay for goods and services, pay their bills and top-up their airtime via their mobile money accounts.
Referring to these new business models, Mobilis CEO, Chris Jones says, “With a billion mobile phone users not having bank accounts there is a significant mismatch between mobile subscriber numbers and bank account holders. This represents a massive opportunity for Mobile Operators to offer new financial services to lift revenue, increase subscriber numbers and reduce churn.”
With MobilisMoney Operators can provide banking services that are otherwise out of reach to the ‘unbanked’ population. MobilisMoney presents a distinct competitive advantage over operators not offering mobile financial transaction services; this leads to strong customer acquisition and establishes new levels of stickiness between the operator and subscriber.
Microfinance Focus, July 30, 2010: Microfinance News Synopsis brings a compilation of industry headlines broadcasted by other news media from across the world.
Rich I.P.O. Brings Controversy to SKS Microfinance: An Indian company with rich American backers is about to raise up to $350 million in a stock offering closely watched by philanthropists around the world, showing that big profits can be made from small helping-hand loans to poor cowherds and basket weavers. The company, SKS Microfinance, is one of the biggest players in the field known as microfinance, which involves loans, often as small as $20,that banks might consider too tiny and risky to bother with. SKS was set up as what philanthropists call a “social enterprise” — a business based on the concept of doing well by doing good. And there is no question that the company’s 41-year-old Indian-American founder, Vikram Akula, and investors who include prominent Silicon Valley venture capitalists will do very well indeed from the I.P.O. [The New York Times]
SBI ties up with Oxigen: State Bank of India on Thursday tied up with Oxigen Services Pvt. Ltd. and its supported company Sahyog Microfinance Foundation to offer banking services by connecting directly to SBI’s core banking system by Oxigen web retailers. Existing web enabled Oxigen retailers will be appointed as customer service points of Sahyog Micro Finance Foundation, a business correspondent to SBI, to carry out banking transactions on behalf of the bank. “This kiosk-based banking model will provide the necessary ease and comfort to customers in all parts of India with inherent benefits like flexi timings and reach through current Oxigen footprint of over 20,000 web enabled retailers. This localisation of retail banking services is much needed for financial inclusion of the unbanked population in both rural and urban India [The Hindu]
Microfinance Focus, July 29, 2010: Developing World Markets (DWM) is an asset manager and an investment bank specializing in asset management for microfinance and other socially positive businesses in developing countries. It is managing approximately $600 million of assets and has invested in over 100 microfinance institutions (MFIs) worldwide as of the most recent quarter.
James Kaddaras, Partner, Developing World Markets
DWM’s asset management activities operate through DWM Asset Management LLC, a limited liability company. In 2006, DWM structured and closed a securitization of cross-border loans to 26 MFIs in 17 countries. The transaction is channelling approximately $60 million of international capital to over 1 million low-income micro-entrepreneurs in Latin America, Eastern Europe, Southeast Asia and the Middle East.
DWM also structured and placed notes to fund a $25 million loan to Access Bank (formerly Microfinance Bank of Azerbaijan) in 2007 and 2008, and has syndicated a €10 million loan in 2007 to an MFI in the Balkan region, one of the largest loans made to any MFI in the region.
In an exclusive interview with Microfinance Focus, James Kaddaras, Partner, Developing World Markets and Jennifer Lee, Head of Lending Team, Asia, spoke about the future prospect of DWM’s investment in India and the challenges they are facing in the bringing in capital to microfinance market.
Microfinance Focus: Can you brief us about the Developing World Markets’ involvement in Indian microfinance sector?
James Kaddaras: Our first equity investment in microfinance was with SMILE and we are exploring other equity and debt opportunities as well. Although as you probably know that on the debt side there are significant restrictions from RBI about foreign debt coming to Indian NBFCs, like ECBs rules, (external commercial borrowing). So it is very difficult to do debt transactions. We are still trying to find ways within the regulatory and legal framework to do that but we are also exploring the equity space on an ongoing basis.
Microfinance Focus: What is the prospect you are seeing in Indian microfinance sector?
James Kaddaras: We think India has a lot of first rate MFIs. I myself came to India 5 years ago to meets MFIs and I have watched them grow tremendously and retain portfolio quality and good management, good corporate governance and still keep their focus on their social mission. I think it is a terrific country for microfinance with lots of opportunity
Microfinance Focus: What are some of the challenges and risks that you are facing in India and how do you plan to address them?
James Kaddaras: The most obvious risk I think is the rate of the growth of some of the MFIs. It is one thing for a company to be growing 20-40 percent a year, that is really a significant growth and it is quite another for a company to be growing 50-100 percent a year. That is perhaps an unsustainable rate of growth. With the financial crisis, some companies have been unable to sustain their growth and because of this, problems which were not apparent earlier have become apparent now.
In general we think it is terrific that more and more low income people are being served in India but there is a limit to how quickly and for how long, MFIs can grow at such a high rate.
Microfinance Focus: What are the strategies DWM is adopting to mitigate the risk of very high growth?
Jennifer Lee: We look for institutions that have set up the right infrastructure to be able to support the high growth. Institutions have the right MIS systems, the right internal controls, and the right internal auditing functions. There are people who have developed their staff to achieve that growth in a controllable manner. We also look at management’s future growth objectives, are they responsibly identifying areas of new need, have they prepared themselves to maintain their high growth and are they looking at growth in a reasonable fashion.
Microfinance Focus: What are the future investment plans of DWM in India?
James Kaddaras: We want India to be the larger portion of our overall investment map. Normally our funds have a country limit of 15% of the total assets and in general our investors don’t like us going to the top of the country limit. We want to see India to be one of the largest countries in our portfolio and are in talk with a lot of companies here.
DWM is unique in its ability to meet all of the needs of the balance sheet of an MFI because we have an investment banking capability as well as fund management capability. We can structure debt and equity issuances or put together securitizations or we can simply invest in existing instruments in the MFIs. We see a number of deals that are of interest to us now. The number of equity transactions we’ll be doing will be less than the number of debt transactions because of the difference in the nature of the two investments
We think India is blessed with a lot of socially motivated promoters who are also very sharp business people. They put together good management teams, good board of directors and good corporate governance policies. Our job is to provide resources to these institutions so that they can provide the low income people we all want to serve.
Sometimes the regulatory framework makes it a little difficult to us. My personal hope would be that the regulators might be able to make some distinction between patient long term social capital which companies like DWM represent and more purely commercial hot capital that might just come in and move out. We know the rules are designed to protect against the excess of the later but they affect our ability to provide capital to MFIs. So I would like to see some differentiation in the rules for microfinance particularly for foreign investors like us
Microfinance Focus, July 29, 2010: Singaporean investment company, Temasek Holdings (Temasek) has reached an agreement with Impulsora Mexicana de Desarrollos Inmobiliarios (IMDI) to establish a joint venture (JV) to pursue land banking opportunities in Mexico. Both parties will commit a total of US$200 million to the JV, which will be formally launched in the third quarter of 2010. The JV will evaluate opportunities arising from the demand for affordable planned housing as Mexico’s middle-income population grows.
Mr Lorenzo Gonzalez Bosco, Temasek’s Managing Director, Investments, Mexico, said, “Mexico’s transforming economy provides opportunities for Temasek to expand its investments in sectors such as real estate. The rising middle-income population also provides a foundation for Mexico’s long-term growth.”
Mr Benito Bucay, board member of IMDI said “IMDI is very pleased to partner with Temasek, a world-class investor with whom we share similar investment principles and, like us, looks to develop long-term business relationships.”
Incorporated in 1974, Temasek Holdings is an Asia investment company headquartered in Singapore. Supported by 12 affiliates and offices in Asia and Latin America, Temasek owns a diversified S$186 billion portfolio as at 31 March 2010, concentrated principally in Singapore, Asia and the emerging economies.
Based in the State of Queretaro, IMDI Impulsora Mexicana de Desarrollos Inmobiliarios) is one of Mexico´s leading and successful developers of raw land. IMDI’s portfolio of residential properties under development in Queretaro target the middle and middle to high-income segments and are being built together with commercial, recreational and education properties to support the new communities there.
Microfinance Focus, July 29, 2010: Latin America focussed development financial institution CAF has recently approved US$5 million line of credit in favor of Caja Rural de Ahorros y Crédito Nuestra Gente S.A to support micro- and small enterprises in Peru.
Caja Rural de Ahorros y Crédito Nuestra Gente S.A. is an institution controlled by the BBVA Foundation for Microfinance (FMBBVA) domiciled in Spain. It was formed after the merger in August 2008 of three financial institutions in different areas of Peru (Caja Nor Peru, Caja Sur, and Edpyme Crear Tacna).
In the framework of its Integrated Support Programs for Micro and Small Enterprises, CAF has signed agreements with several financial institutions, institutions for development of small and micro-enterprises (Edpymes), and municipal savings and loan banks, with the aim of significantly increasing its offering of products and financial services at the same time as expanding the financing options for small and micro enterprises.
CAF director representative in Peru Eleonora Silva Pardo said the mechanism would allow the bank to meet demand for credit from micro and small enterprises in the country. “The granting of this line of credit is part of the process of expanding the services offered by the multilateral financial institution to micro and small enterprise sectors,” she said.
The objective of Caja Nuestra Gente – based in the city of Trujillo – is intermediation of funds to support microfinance activity in Peru, for which it is authorized to generate and place funds. To carry out its activities, the bank has a network of 68 agencies covering the city of Lima, and the North, South and East of Peru. It also has 45 correspondent agencies with Banco de la Nación around the country.
