NBFC-MFIs set to tap capital market

India's non-bank microfinance lenders are gearing up to tap the capital market as the sector promises the likelihood for steady growth after a couple of years of anxiety.

The sector expanded 10% year-on-year to Rs 2.85 lakh crore at the end of March, data published by industry body Microfinance Institutions Network (MFIN) showed. It is expected see a higher growth print this fiscal as normalcy in business is back following the removal of Covid-related restrictions.

While one NBFC-MFI is looking to raise capital by way of initial public offer, others will sell shares mostly on private placement basis, people tracking the sector said.

Fusion Microfinance's proposed IPO consists of a fresh issue of shares worth Rs 600 crore. Arohan Financial Services is at present contemplating raising equity from existing investors following the expiry of the deadline of its proposed IPO.

Lenders such as Annapurna Finance, Muthoot Microfin, Sindhuja Microcredit and Uttrayan Financial Services are working on to sell shares, heads of these organisations said.

Bhubaneswar-based Annapurna is in the process of raising Rs 115 crore in equity while Delhi-based Sindhuja is eying Rs 80 crore and Kolkata-based Uttrayan plans a Rs 50-crore infusion.

Muthoot Microfin, a part of Kerala’s Muthoot Pappachan Group, is looking to raise $35 million this fiscal, following the $50-million equity infusion last year, chief executive Sadaf Sayeed said. "We anticipate business growth of 30-35%; hence, we will raise debt of additional Rs 2,500 crore," Sayeed said.

“Capital raising became more challenging these days as the growth trajectory for most lenders derailed following the pandemic. Also, investors tend to put their money in bigger firms while the smaller ones with less than Rs 500 crore portfolio are struggling,” said Kartick Biswas, managing director at Uttrayan, which has a Rs 200-crore portfolio.

Among the bigger ones, Satin Creditcare Network is in the midst of preferential allotment of equity shares. It did a preferential allotment of equity shares and convertible warrants worth Rs 225 crore, against which Rs 75 crore is paid upfront in January and the balance will be paid within 18 months, chairman HP Singh said.

Captains of the industry however rue that Small Industries Development Bank of India, which maintains Indian Microfinance Equity fund, is not making fresh equity investment.

NBFC-MFIs had raised Rs 2832 crore equity between them in the last financial year which was nearly 15% more than what they did in the preceding fiscal with the sector showing steady traction in loan growth while repayment collection is back to pre-Covid level.

They had mobilized Rs 2476 crore in FY21. Total equity of the NBFC-MFIs grew to Rs 21,419 crore at the end of March 2022, data from MFIN showed.

These lenders also received a total of Rs 47,931 crore in debt funding during FY22, which is an 18% compared to the borrowings in the preceding fiscal.

The entire microfinance sector caters to 5.8 crore unique borrowers through 11.3 crore loan accounts. Gross loan portfolio of NBFC-MFIs stood at Rs 96,561 crore, reflecting 19.4% more year-on-year rise.

“The microfinance industry has shown good progress during Q4 of FY22 building on the momentum created in Q3. The portfolio quality has improved significantly as compared to the end of Q1 FY22, when the second wave of Covid had caused widespread stress across all parts of the country," MFIN chief executive Alok Misra said.