by the MicroCapital Team - Deals, South Asia, East Asia and Pacific -

MICROCAPITAL BRIEF: Small Industries Development Bank of India (SIDBI) Takes 11% Stake in Microfinance Institution Bandhan for $10.7m

Bandhan Financial Services Private Limited, a Indian microfinance institution reports that it has completed its first major equity raise with a INR 500,000,000 (USD 10.7 million) investment from the government-backed Small Industries Development Bank of India (SIDBI).The Livemint website reported that the transaction gave SIDBI a 10.92 percent stake in Bandhan. The funding will be used to consolidate existing operations and further expand beyond Bandhan’s historical base in the eastern and northeastern sections of the country. Bandhan reports an outstanding loan portfolio of INR 10.8 billion (USD 232 million), 2.1 million clients and 1,008 branches in 15 states of India. Prior to this transaction, K S Singhwan, of SIDBI reckons that his organizations’ loans and other support to Bandhan since its inception in 2001 have totaled INR 4.9 billion (USD 105 million). Unitus Capital, an advisory firm affiliated with nonprofit Unitus, acted as the sole financial advisor for the transaction. Bandhan also has an affiliated nonprofit offering health, education and business development services.

Sources and resources:

Bandhan Financial Services Private Limited:
http://www.bandhanmf.com/

Small Industries Development Bank of India:
http://www.sidbi.com/

Livemint article:
http://www.livemint.com/2009/12/23220329/Bandhan-sells-11-stake-to-Sid.html

Unpublished press release received from Bandhan December 23, 2009:

PRESS RELEASE

Bandhan raises Rs. 500 million of equity capital from Small Industries Development Bank of India
(SIDBI)

Bandhan Financial Services Private Limited (Bandhan), a pan-India microfinance institution headquartered in Kolkata, is pleased to announce the successful completion of its first major round of equity infusion of INR 500,000,000 (Rupees five hundred million – US$ 10.7mn approx), from Small Industries Development Bank of India (SIDBI), the principal financial institution for promotion, development and financing of the Micro, small and medium enterprises in India.

Bandhan (meaning togetherness) was born in 2001 under the leadership of Mr. Chandra Shekhar Ghosh, a Senior Ashoka Fellow. The main thrust of Bandhan is to work with women who are socially and economically disadvantaged, for their social up-liftment and economic emancipation. Bandhan commenced group-based microfinance operations in West Bengal in July 2002. As on November 30, 2009, Bandhan had Rs. 10,800 million of portfolio outstanding to a client base of 2.1 million spread across 15 states of India and managed through a network of 1,008 branches. Bandhan’s primary focus has historically been on Eastern and North-Eastern India, which comprise some of the most economically disadvantaged states in the country. It has a hard working and committed work force of over 6,000 employees – 80% of whom hail from poor families. What is striking is its repayment rate which is recorded at 99.91%, breaking the myth that “poor are not bankable”.

Over the years, Bandhan and its promoters/ promoting entities have been felicitated by numerous awards and honours, in recognition of their impressive efforts in eradicating poverty and empowering women through the process of financial inclusion. In December 2007, Forbes magazine ranked Bandhan as the best performing MFI in India and the second best in the world. Bandhan was the only Indian MFI and one of the two Asian MFIs featuring in the top 10 MFIs globally. Bandhan has also been honored with the Skoch Challenger Award for financial inclusion in 2008 and the Pro Poor Innovation Challenge (PPIC) Award by the Consultative Group to Assist the Poor (CGAP), an affiliate of the World Bank in 2006. Very recently, Bandhan won the ‘Microfinance India Award 2009’ in the category ‘Institution of the Year’. The newly infused equity will provide Bandhan with the impetus needed to consolidate operations in the states in which it is present and to expand to other states within the country. By March 2014, Bandhan projects to have a portfolio of over Rs. 60,000 million outstanding to more than eight million borrowers spread across all states within India.

Mr. Chandra Shekhar Ghosh, the Founder, Chairman & Managing Director of Bandhan says “SIDBI has been a pillar of support for us since the very beginning and has stood by us through thick and thin. It is a tribute to the hard work of each and every employee of Bandhan that a national institution like SIDBI has invested in us. The continuous debt funding from SIDBI, which has steadily grown over time, and the intensely effective capacity building support and valuable advice extended in the earlier years have immensely contributed to the success of Bandhan. SIDBI, with its immense market knowledge, strong development focus and active policy advocacy participation will be extremely beneficial to Bandhan to reach millions of poor clients across India. Bandhan team is proud to have an apex national institute of repute like SIDBI as its long term investor.”

Under the dynamic leadership of Mr. Ghosh, Bandhan has provided financial services to poor women in an efficient, timely and cost effective manner. BFSPL has emerged as a leader in the field of microfinance with SIDBI as its partner in the phenomenal growth achieved over the years. Infusion of equity of Rs.50 crore would empower Bandhan to raise substantial loans from lenders and enhance its reach, opined Mr. K S Singhwan, CGM heading the Eastern Zone of SIDBI. He added that SIDBI has supported Bandhan right from its nascent stage and has extended multiple loans, capacity building grant and Transformation loan aggregating about Rs.4900 million up to November 2009. While the term loan has helped Bandhan to start up and upscale its micro finance operations, CB grant has contributed significantly to institution development processes of the MFI. Transformation loan, an almost no cost equity type support, contributed to the MFI?s leveraging of debt in its formative years.

“Unitus Capital is privileged to work with Bandhan, which is one of the top MFIs in the world. This partnership with SIDBI is a testimony to the success of Bandhan in providing financial services to the underprivileged with great efficiency, which is changing the lives of millions of families at the bottom of the pyramid. This funding will allow Bandhan to expand its operations throughout India and beyond” says Mr. Abhijit Ray, Director of Unitus Capital, which acted as the sole financial advisor for the transaction.

About Bandhan
Bandhan is an internationally acclaimed and honored Non Banking Finance Company which engages in microfinance activity to poor women across India, with primary focus on the East and North-East. As on November 30, 2009 Bandhan had Rs. 10,800 million of portfolio outstanding to a microfinance client base of 2.1 million spread across 15 states of India and managed through a massive network of 1,008 branches.

Bandhan is also actively engaged in the development space through it?s not for profit entity in order to ensure holistic development of the poor through its work in the areas of health, education and livelihood development activities. It also has an exclusively designed program for the poorest of the poor.

About Small Industries Development Bank of India (SIDBI)
SIDBI, established on April 2, 1990 as the principal financial institution for the Micro, Small and Medium enterprises (MSMEs), has been taking several initiatives to meet the varied credit and noncredit needs of the sector with the mission to empower MSMEs. In order to accelerate the process of financial inclusion SIDBI had initiated micro finance activities by setting up a dedicated department called SIDBI Foundation For Micro Credit (SFMC) in 1999, to create a national network of strong, viable and sustainable Micro Finance Institutions (MFIs) to provide microfinance services to the poor, especially women. Cumulatively SIDBI has sanctioned micro finance assistance loan, grant and equity amounting to about Rs 60,000 million to 135 partner MFIs who in turn have assisted over 2 crore poor clients, mostly women.

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