IFMR Capital, a non-banking finance company (NBFC) which offers lending to micro finance institutions and other NBFCs, is planning to tap debt capital from pension funds and insurance companies.
IFMR has already been using various debt instruments like collateralised bond obligation (CBO) and non convertible debentures (NCDs) to meet its funding instruments.
The company was working on bringing different instruments in the debt capital market, including securitisation transactions, NCDs, CBOs and others, opening up the funding options to the micro finance industry, small firms and others, whom it calls originators, who typically do not have access to the capital market and even bank loans.
“In the coming year, we are hopeful we can bring in many other investors on board. We are hopeful we will bring in some of the pension funds and some insurance companies into these sectors. These are interesting investors as they come with long-term money, and their investment horizon is long,” said Kshama Fernandes, managing director and CEO of IFMR Capital. She added the company at present did not have exposure to these two sources.
Pension funds and insurance companies typically require a minimum rating to invest. For instance, they will not invest in a firm rated as ‘BBB’ and would require at least ‘A plus’, if not ‘AA’ ranking. IFMR Capital is working with the originators in improving their ratings as well as conducts meetings with pension funds and insurance companies, tell them its activities and how the originators work. The NBFC might be able to build in structures which make the pension funds and insurance companies confident on the originator, she added.
The company is almost covering the entire spectrum of the debt instruments possible. "No Mutual Fund Investor ever invested in microfinance, affordable housing finance or commercial vehicle finance before we came in. Today we are having some of the biggest mutual funds in the country investing in these sectors through us. We have got new class of investors," she said.
The company has also put together the multi originator securitisation (MOSEC), under which it pools together multiple Micro Finance and issue a single paper in the market. This gives a diversification for the investor, and even the small enterprises can access the market. It has also done three or four CBOs with plans to launch many more CBOs in the future.
Founded in 2008 and promoted by IFMR trust, IFMR Capital connects the micro finance, affordable housing companies and other small business units, which does not have access to the regular bank loans and other financing options, with investors in the existing and emerging debt capital market.
In 2013-2014, IFMR Capital enabled Rs 3500 crore financing to the underlying sectors achieving a 100 per cent growth in providing access to Capital for the financially excluded. It has also facilitated over Rs 10,000 crore debt financing across the verticals, including its own investment of Rs 1,000 crore into the originator companies.
IFMR Capital has a team of 50 members with its headquarters in Chennai, with offices in Mumbai and Gurgaon and operates in over 375 districts across 24 states in India. It has raised its first private equity investment of around $29 million from LeapFrog Investments, a private equity firm in financial services in developing markets like Africa and Asia, in March 2014.
It currently has around 50-70 investors and almost same number of originators. It has also facilitated debt capital for over 52 clients, including firms like Suryoday Microfinance, Satin Creditcare, Ujjivan Microfinance, Vistaar Financial Services and Shubham Housing Development Finance, across 24 states of India.