MICROCAPITAL BRIEF: Indian Microfinance Institution BSFL Threatened by Deterioration in Portfolio Quality, Urgently Seeks New Funding to Stave Off Potential Collapse

Bhartiya Samruddhi Finance Limited (BSFL), an Indian microfinance institution (MFI) and member of the BASIX Group, has witnessed a sharp downturn in the quality of its loan portfolio and reportedly may not be able to continue operations without additional funding. The founder and chairman of BASIX, Mr Vijay Mahajan, says that BSFL will fail unless it can raise INR 4.4 billion (USD 100 million) in equity funding and retail loans of INR 10 billion (USD 225 million) within the next two to three months. Although BSFL still reports assets in excess of liabilities, bad loans made in the Indian state of Andhra Pradesh (AP) worth INR 4.5 billion (USD 100 million) are expected to result in a negative net worth and an unsustainable financial position.

BSFL’s financial standing has deteriorated largely because of its exposure to AP, where repayment rates have settled at 10 percent since the “microfinance crisis” began in late 2010. Out of INR 5.4 billion (USD 120 million) that was disbursed by BSFL in Andhra Pradesh, only INR 900 million (USD 20 million) has been recovered with the remainder to be written off, therefore preventing the MFI from attracting new funding.

Mr Mahajan says the situation is more difficult because “equity investors are waiting for assurance from bankers, who are in turn waiting for assurances from equity investors and regulators.” If BSFL executives can encourage commercial banks and investors to provide new funding, notwithstanding its weak balance sheet, the MFI may be able to expand its lending operations in other Indian states and generate new revenues.

As of March 31, 2011, BSFL reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 352 million, a gross loan portfolio of USD 281 million, return on assets (ROA) of 0.66 percent, return on equity (ROE) of 4.73 percent and 1.72 million active borrowers.

By Rohan Trivedi, Research Associate

About Bhartiya Samruddhi Finance Limited (BSFL):
Bhartiya Samruddhi Finance Limited (BSFL) is a regulated non-banking finance company (NBFC) based in Hyderabad, India, that was founded in 1997. It is part of the BASIX Group, which provides microfinance, agricultural and business development services to poor, rural households. As of March 31, 2011, BSFL reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 352 million, a gross loan portfolio of USD 281 million, return on assets (ROA) of 0.66 percent, return on equity (ROE) of 4.73 percent and 1.72 million active borrowers as of March 31, 2011.

About BASIX Group:
BASIX Group is an Indian institution that consists of companies that provide various services targeted at poor people including microfinance, health insurance and agricultural and business development services. The BASIX Group operates through a holding company, Bhartiya Samruddhi Investments and Consulting Services Limited (BASICS Ltd). BASIX Group’s microfinance activities are carried out by two MFIs; Bhartiya Samruddhi Finance Limited (BSFL), a non-banking finance company (NBFC), and Krishna Bhima Samruddhi Local Area Bank Limited (KBSLAB), a rural bank. As of September 30, 2010, BASIX reported a gross loan portfolio of USD 402 million, approximately 3 million clients and operations in 16 Indian states and 6 other countries.

Sources and Additional Resources:

[1] LiveMint.com: “India’s oldest microfinance firm on the verge of closure”, http://www.livemint.com/2011/07/27003826/India8217s-oldest-microfina.html?h=B

MicroCapital.org story, May 30, 2011: “MICROCAPITAL BRIEF: BASIX Group of India Looks to Boost Fee-Based Income by Offering Commercial Banks Access to Its 3.5m Microfinance Customers”, https://www.microcapital.org/microcapital-brief-basix-group-of-india-looks-to-boost-fee-based-income-by-offering-commercial-banks-access-to-its-3-5m-microfinance-customers/

MicroCapital.org story, April 19, 2011: “MICROCAPITAL BRIEF: Indian Banks Seek Personal Guarantees from Microfinance Institution (MFI) Executives As Condition of Debt Restructuring”, https://www.microcapital.org/microcapital-brief-indian-banks-seek-personal-guarantees-from-microfinance-institution-mfi-executives-as-condition-of-debt-restructuring/

MicroCapital.org story, March 7, 2011: “MICROCAPITAL BRIEF: Vijay Mahajan of Indian Microfinance Institution (MFI) BASIX Undertakes 75-Day Journey Across 12 Indian States to Gain Feedback From Poor People”, https://www.microcapital.org/microcapital-brief-vijay-mahajan-of-indian-microfinance-institution-mfi-basix-undertakes-75-day-journey-across-12-indian-states-to-gain-feedback-from-poor-people/

MicroCapital Universe Profile: Bhartiya Samruddhi Finance Limited (BSFL), http://microcapital.org/microfinanceuniverse/tiki-index.php?page=Bhartiya+Samruddhi+Finance+Ltd+%28BSFL%29

MicroCapital Universe Profile: BASIX Group, http://microcapital.org/microfinanceuniverse/tiki-index.php?page=BASIX+Group

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