Small business lender Five Star gets $234 mn in new investment round

Chennai-based registered non-banking finance company will use the capital to expand its business.

A consortium will invest $234 million in Chennai-based Five-Star Business Finance Limited (Five Star) in a deal that values the small-businesses lender at $1.4 billion, the parties announced on Friday.

Five Star’s traditional investors, led by Sequoia Capital India with participation from Norwest Venture Partners, and new ones, led by KKR with participation from TVS Capital, attended the funding round. The investment will be a combination of primary infusion and secondary shares sold by Morgan Stanley Private Equity. 

Martix Partners and TPG Capital will continue with their investment in the company.

Five Star, a registered non-banking finance company with 262 branches in eight states of India, will use the capital to expand its business. It offers collateralized loans based on a "thorough assessment" of a borrower’s business and household cash flows. As of December 31, 2020, the company’s AUM stood at R. 4030 crore and its GNPA stood at 1.29 per cent.

“In our mission of ‘Funding the unfunded,’ we have created a niche for ourselves empowering small businesses and the self-employed across corners of India by providing them with reliable and responsible funding alternatives," said D Lakshmipathy, chairman and managing Director of Five Star. 

“Sequoia Capital India is delighted to be investors in Five Star and are strong believers in their business model that bridges the large credit gap that exists for small and micro enterprises,” said G V Ravishankar, managing director of Sequoia India. 

Niren Shah, managing director of Norwest India, said, “Five Star continues to have the finest asset quality together with strong growth and robust profitability.”