MICROCAPITAL BRIEF: Indian Court Rules Against Co-Founder of SMILE Microfinance, Leaving Control to US-Based Developing World Markets

An Indian court has denied a petition from Dr N Sethuraman, the co-founder of Semam Microfinance Investment Literacy and Empowerment (SMILE Microfinance), leaving control of the Indian microfinance institution (MFI) unchanged in the hands of Developing World Markets (DWM), a US-based investment company that has owned a stake amounting to approximately two thirds of SMILE since 2010. The case stems from a dispute that began in September 2011 when SMILE was sent a legal notice demanding dues of INR 50 million (USD 800,000) be paid to a software company managed by Dr Sethuraman’s daughter, Dr S Brathibha, who also served as a director of SMILE. As a result of the dispute, Dr Sethuraman, who was then the firm’s chairman, quit the company, at which point Dr Sethuraman’s proxies were revoked. Dr Sethuraman allegedly stated recently that the revocation of his proxies demonstrates that “foreign investors are trying to take control of the company, and looking to sell their stake to a third company.” Explaining the ruling in favor of DWM, the judge cited – in part – Dr Sethuraman’s decision to leave the company in 2011 and not to seek legal action until recently.

DWM tells MicroCapital that the company “believes the judgment of the Madras High Court stands on its own. DWM appreciates the role of Dr Sethuraman in founding SMILE. DWM also is proud of its own role in moving the company forward substantially since becoming majority shareholder in 2009/10. As a socially responsible investor, DWM has the best interest of SMILE’s customers, employees and stakeholders in mind and will continue to support the Company.”

As of September 30, 2013, SMILE reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 60.3 million, a gross loan portfolio of USD 51.1 million and 402,000 active borrowers. As of year-end 2012, SMILE reports return on assets (ROA) of 1.0 percent and return on equity (ROE) of 3.5 percent. The MFI does not accept deposits. As of December 2012, DWM manages approximately USD 765 million in assets and has financed approximately 150 institutions in 40 countries.

By Charlotte Newman, Research Associate

About SMILE Microfinance
Semam Microfinance Investment Literacy and Empowerment (SMILE) Microfinance Limited is a Chennai-based MFI that began its operations in 2004 and is majority-owned by US-based investment company Developing World Markets. As of September 30, 2013, SMILE reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 60.3 million, a gross loan portfolio of USD 51.1 million and 402,000 active borrowers. As of year-end 2012, SMILE reports return on assets (ROA) of 1.0 percent and return on equity (ROE) of 3.5 percent. The MFI does not accept deposits.

About Developing World Markets
Developing World Markets (DWM) is a US-based asset manager and investment bank that aims to make investments to promote sustainable economic development. It provides both debt and equity investments to microfinance institutions (MFIs) and other socially motivated organizations. As of December 2012, DWM manages approximately USD 765 million in assets and has financed approximately 150 institutions in 40 countries.

Sources and Additional Resources:

Economic Times: “SMILE Microfinance to remain in Developing World Markets’ hands,” http://articles.economictimes.indiatimes.com/2014-01-20/news/46374720_1_proxies-n-sethuraman-rs-300-crore

Information sent from Developing World Markets to MicroCapital.

MicroCapital.org story, April 1, 2013, “Overseas Private Investment Corporation (OPIC) Lends $5m to Thaneakea Phum Cambodia (TPC) to Expand Housing, Microfinance Loans,” https://www.microcapital.org/microcapital-brief-overseas-private-investment-corporation-opic-lends-5m-to-thaneakea-phum-cambodia-tpc-to-expand-housing-microfinance-loans/

MicroCapital.org story, November 1, 2011, “Georgia’s Crystal Receives $2m in Equity from Unnamed Microfinance Investment Vehicle Managed by Developing World Markets,” https://www.microcapital.org/microcapital-brief-georgia%E2%80%99s-crystal-receives-2m-in-equity-from-unnamed-microfinance-investment-vehicle-managed-by-developing-world-markets/

MicroCapital.org story, August 16, 2010, “Chennai-based Microfinance Institution SMILE Receives $10m Investment from Developing World Markets,” https://www.microcapital.org/microcapital-brief-chennai-based-microfinance-institution-smile-receives-10m-investment-from-developing-world-markets/

MicroCapital Universe Profile: Smile Microfinance
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=S.M.I.L.E+Microfinance+Limited+%28SMILE%29

MicroCapital Universe Profile: Developing World Markets
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Developing+World+Markets+%28DWM%29

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