MICROCAPITAL BRIEF: Mutual Funds in India Invest $157m in Secured Debentures of Microfinance Institutions (MFIs) Equitas, Janalakshmi, SKS, Ujjivan

Several mutual funds based in India, including Industrial Credit and Investment Corporation of India (ICICI) Prudential Mutual Fund, Housing Development Finance Corporation (HDFC) Mutual Fund, Kotak Mutual Fund, Reliance Mutual Fund and State Bank of India (SBI) Mutual Fund, recently invested in secured debentures issued by several Indian microfinance institutions (MFIs). The issuers include Equitas Microfinance (Equitas); Janalakshmi Financial Services (JFS); SKS Microfinance (SKS) and Ujjivan Financial Services (Ujjivan). Although the individual transaction amounts are not available, the investments by the mutual funds total approximately INR 10 billion (USD 157 million). The debentures bear coupon rates of 11.5 up to 13 percent, approximately 3 to 4 percent above than highly rated securities issued by other Indian companies. The securities are backed by receivables and fixed assets owned by the MFIs.

The above-mentioned mutual funds had stopped investing in MFIs after the 2010 downturn in the state of Andhra Pradesh, when microcredit repayment rates dropped substantially and several borrowers committed suicide “due to alleged harassment by lenders”[1]. This crisis led the Reserve Bank of India, the authority regulating MFIs in the country, changing several Microfinance regulations.

Navneet Munot, the chief investment officer at SBI Mutual Fund, said that “microfinance, as a sector, has become more amenable to investments post the Andhra Pradesh crisis. Lots of regulatory controls have been put in place… the sector is very stable for investments now. We expect the sector to do well in the years to come”[1].

As of March 2014, Equitas reported total assets of USD 288 million, a gross loan portfolio of USD 250.3 million, 1.8 million active borrowers, return on assets of 3.66 percent and return on equity of 19.54 percent. As of December 2014, JFS reported total assets of USD 420 million, a gross loan portfolio of USD 342 million, 1.4 million active borrowers, return on assets of 2.94 percent and return on equity of 13.42 percent. As of March 2015, SKS reported total assets of 754 million, a gross loan portfolio of USD 671 million and approximately 5.1 million borrowers. As of March 2014, SKS reported return on assets of 2.88 percent and return on equity of 16.52 percent. As of March 2014, Ujjivan reported total assets of USD 343.4 million, a gross loan portfolio of USD 269.3 million, return on assets of 3.50 percent, return on equity of 15.66 percent and 1.3 million active borrowers. None of the four MFIs accept deposits

By Victor Mugo, Research Associate.

About Equitas Microfinance

Equitas is a microfinance institution (MFI) that was created in December 2007 and is located in Chennai, India. The company provides microcredit to low-income households in India. The objective of the company is to make credit available at a reasonable cost and in a transparent manner to the underbanked population of India, as well as achieve sufficient returns on investment in order to attract capital. As of March 2014, Equitas reported to the Microfinance Information Exchange (MIX) assets of USD 288 million, a gross loan portfolio of USD 250.3 million, 1.8 million active borrowers, return on assets of 3.66 percent and return on equity of 19.54 percent. The MFI does not accept deposits.

About Janalakshmi Financial Services

Janalakshmi Financial Services (JFS) is a microfinance institution (MFI) located in India. It is focused primarily on offering loans and microinsurance in urban areas. As of 2014, JFS reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 420 million, a gross loan portfolio of USD 342 million and 1.4 million active borrowers. As of year-end 2014, JFS reported return on assets of 2.94 percent and return on equity of 13.42 percent. The MFI does not accept deposits.

About SKS Microfinance

SKS Microfinance is a for-profit microfinance institution (MFI) that was launched in 1998 in India. SKS converted into a public limited company in May 2009 and launched an initial public offering on July 28, 2010. It has since diversified into offering gold loans and microinsurance services but the organisation does not accept deposits. As of March 2015, SKS reported to US-based nonprofit Microfinance Information Exchange (MIX) total assets of 754 million, a gross loan portfolio of USD 671 million, approximately 5.1 million borrowers. As of March 2014, SKS reported return on assets of 2.88 percent and return on equity of 16.52 percent. SKS shares trade on the Bombay Stock Exchange and India’s National Stock Exchange.

About Ujjivan Financial Services

Ujjivan Financial Services is a microfinance institution (MFI) based in Bangalore, India, that offers loans and insurance products. It was founded in 2004 and focuses on low-income women in urban and semi-urban areas. Its products include business loans, educational loans, emergency loans and life insurance. As of March 2014, Ujjivan reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 343.4 million, a gross loan portfolio of USD 269.3 million, return on assets of 3.50 percent, return on equity of 15.66 percent and 1.3 million active borrowers. The MFI does not accept deposits.

Sources and additional resources.

[1] Mutual funds invest in microfinance companies
http://economictimes.indiatimes.com/mf/mf-news/after-five-year-hiatus-mutual-funds-turn-to-investing-in-microfinance-companies/articleshow/47621765.cms

[2] MicroCapital Brief; October 18, 2010
Andhra Pradesh Goverment Plans Legislation to Restrict Collection Practices of Microfinance Institutions (MFIs) After Rise in Suicide Among Borrowers
https://www.microcapital.org/microcapital-brief-andhra-pradesh-government-plans-legislation-to-restrict-collection-practices-of-microfinance-institutions-mfis-after-rise-in-suicides-among-borrowers

[3] MicroCapital Universe Profile:
Equitas Microfinance
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Equitas+Micro+Finance+India+Private+Limited

[4] MicroCapital Universe Profile: Janalakshmi Financial Services
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Janalakshmi+Financial+Services+%28JFS%29

[5] MicroCapital Universe Profile: SKS Microfinance
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=SKS+Microfinance

[6] MicroCapital Universe Profile: Ujjivan Financial Services
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Ujjivan+Financial+Services

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