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Microfinance institutions (MFIs) are increasingly tapping the Rs 12 lakh-crore domestic mutual fund segment for their debt financing needs, diversifying their sources and reducing dependence on banks.
In the past eight months, some large MFIs, including Ujjivan, Janalakshmi and Equitas, have raised funds by issue of non-convertible debentures (NCDs) to mutual fund houses. So far, foreign institutional investors (FIIs) used to subscribe to NCDs issued by MFIs.
Between December 2014 and May 2015, Bengaluru-based Ujjivan raised nearly Rs 225 crore through private placement of NCDs with mutual fund houses. The mutual fund houses which subscribed to the NCDs include UTI Mutual Fund, Reliance Mutual Fund and ICICI Prudential, according to a company spokesperson.
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Ujjivan plans to raise Rs 300-400 crore from mutual fund houses by the end of this financial year. Currently, mutual fund accounts for 15-18 per cent of the total debt funding for some of the large MFIs.
“We have been raising funds through mutual funds to diversify our portfolio. Thus, even though initially the rates were slightly higher, we opted for the instrument to cut our dependence on banks. Gradually, the rates of interests are also coming down. At present, the annual yields are around 12.16 per cent,” said an official from Ujjivan.
Around December 2014, when MFIs for the first time started raising funds through mutual funds, the yields were around 13.6 per cent.
In March 2015, Chennai-based Equitas raised nearly Rs 100 crore through NCDs from Franklin Templeton Mutual Fund.
“This is a way to diversify our source of funding. Over the past few months, debt investment by mutual funds has emerged an important source of funding. One of the advantages of getting funds from mutual funds over banks is the fixed rate of interest offered by the mutual funds, against floating rate by banks,” said P N Vasudevan, managing director, Equitas Holdings.
At present, banks account for nearly 78 per cent of funding for MFIs. As of March 2015, the gross loan portfolio of the sector was around Rs 40,000 crore.
“There is a lot of interest among mutual fund houses in investing in MFIs. However, unlike FIIs, mutual funds have been investing only in highly-rated MFIs,” said Abhijit Ray, managing director, Unitus Capital.
“Debt investment from mutual funds is a win-win situation for both MFIs and mutual funds. For MFIs it is a new source of funding, while for mutual funds, it is a new investment avenue. Going forward, mutual funds can be an important source of funding for MFIs,” said V S Radhakrishnan, managing director and CEO of Janalakshmi Financial Services.
