Ujjivan MFI set for major investor churn

Bellwether sells stake, Michael & Susan Dell Foundation may exit IFC in talks to buy stake

Bangalore-based Ujjivan Microfinance, one of the first microfinance institutions (MFIs) to attract private equity investment, is set to see a major churn of investors.

Bellwether, a fund that invests in start-ups and mid-sized Indian microfinance institutions, has sold its seven per cent stake in the MFI to Lok Capital, an existing investor in Ujjivan. Michael & Susan Dell Foundation (MSDF), which held about six per cent stake in the company, is also set to exit Ujjivan by the end of this month.

“New investors are in the process of buying stake in Ujjivan. Bellwether was in Ujjivan since the beginning. Then, it came in as a domestic investor. However, due to subsequent changes in rules, it turned a foreign investor. This was one of the reasons for the exit. As far as MSDF is concerned, its objective was to see us established. That being achieved, it is exiting,” said Samit Ghosh, founder and managing director, Ujjivan.

Bellwether, which had invested in the MFI in 2005, recorded a profit of about 24 per cent in the deal, said sources.

“We have made some additional investments in Ujjivan,” said Venky Natarajan, managing director of Lok Advisory Services.

It is believed MSDF’s six per cent stake in Ujjivan would be acquired by a social investor by the end of this month.

Investors in Ujjivan include Sequoia Capital, Lok Capital, Unitus Equity Fund, India Financial Inclusion Fund, Elevar Equity, FMO (Netherlands Development Finance Company) and WCP Mauritius Holdings III (Wolfensohn Capital Partners).

Ujjivan is also in talks with International Finance Corporation, the private sector investment arm of the World Bank, for fresh equity of Rs 45 crore.

Even as funds had dried up in 2011-12, leading to a decline in business, in January, Ujjivan received Rs 127.80 crore in fifth round of equity infusion into the company. In the initial round of funding, the company received domestic funds with a share capital of about Rs 2.80 crore; Bellwether Microfinance Fund was the largest domestic investor. The second round of capital infusion was under the foreign direct investment automatic route, with Mauritius Unitus Corporation and MSDF investing 37.50 per cent in the company. This was MSDF’s first microfinance equity investment globally.

The third round of capital infusion, in October 2007, was of Rs 9 crore, while the fourth was carried out in November 2008. Originally planned for Rs 75 crore, the equity round was oversubscribed, increasing to Rs 87.80 crore. New investors in this round included Sequoia Capital, Lok Capital, Unitus Equity Fund II and India Financial Inclusion Fund.

With a portfolio of Rs 703 crore spread over 20 states, Ujjivan is the third-largest MFI (excluding the Andhra Pradesh MFI portfolio) in the country. Before a crisis broke out in the microfinance sector in 2010, SKS, Spandana, Share and Asmitha accounted for about 60 per cent of the sector’s business. However, the Andhra Pradesh crisis provided an opportunity for smaller MFIs like Ujjivan to grow, in terms of size and business growth. In 2008-10, Ujjivan’s portfolio almost doubled from Rs 370 crore to Rs 625 crore

In 2011-12, Ujjivan carried out a major business consolidation drive to reduce costs.

Through mergers, it reduced the number of branches from 350 to 299. The company recorded 12.5 per cent growth in business at Rs 703 crore, with a profit before tax of Rs 2.19 crore.

While the microfinance industry is struggling to stabilise after the regulatory clampdown in 2010, the Reserve Bank of India’s recent relaxation of provisioning norms and the 26 per cent cap on lending rates has provided a breather to the sector.