MICROCAPITAL STORY: Bellwether Microfinance Fund Invests $480K in Equitas Micro Finance India

In May 2009, Bellwether Microfinance Fund, a private equity fund based in Hyderabad, India, reported a USD 479,600 equity investment in Equitas Micro Finance India, a Chennai based microfinance institution (MFI), to the CGAP Microfinance Dealbook, the monthly report on microfinance market transactions. The deal was denominated in local currency. MicroCapital has reported on a May 2009 USD 3.7 million investment by MicroVentures in Equitas as well as a securitization worth USD 3.0 million in March 2009.

Bellwether, founded in August 2004 and under the management of Caspian Advisors, is in the process of expanding its investments and adding microfinance partners. Initial investors included Gray Ghost Fund LLC, Hivos Triodos Fund and the Netherlands Development Finance Company. By December 2006, the fund size reached USD 10 million. Currently, Bellwether seeks to increase its equity portfolio to USD 20 million and make 15 investments in an unspecified time frame. Bellwether primarily deals in equity, but also uses subordinated debt and guarantees as financial instruments. Bellwether also offers plain debt to existing MFI partners. Apart from investments, Bellwether also technically supports MFIs. According to the MIX Market, the microfinance information clearinghouse, the assets of the Bellwether Fund are USD 20 million. All of the assets were allocated to microfinance investments, but USD 4.3 million had not yet been disbursed as of December 2007.

Bellwether claims to focus investing in start-up microfinance institutions (MFIs) and midsize NGOs transforming into legal MFIs. Current MFI investments include Ujjivan, MAS, Sonata, Arohan, Biswa, Janalakshmi, Mimo Finance, Trident Financial Services, and Shree Hari Fintrade Private Limited. These MFIs are located in various Indian states, including Andhra Pradesh, Orissa, Maharastra, and Gujarat, in both urban and rural areas.

Equitas is an urban MFI in the state of Tamil Nadu. There are 10 branches operating in Chennai, although Equitas has a target of opening 5 further branches in towns outside of Chennai and reaching 180,000 clients in Tamil Nadu. According to the MIX Marketer, Equitas serves 16,166 borrowers and maintains a gross loan portfolio of USD 56.6 million as of December 2008. Its debt equity ratio stood at 163.3 percent while its return on assets was 2.1 percent.

Equitas uses a modified Grameen model, arranging customers into groups of five members and then forming centers consisting of 5 groups. Each group member is liable for the repayment of fellow members. The loan application process includes group training and a credit screening process involving visits to the customer´s home. Loan payments are collect in biweekly meetings involving the five groups in each center. Fees include a small membership fee, a one-time payment of USD 1, and a processing fee of 2.25 percent of the loan amount.

Equitas offers loans for business expansion, business launches, and the education of children, and purchasing gold coins, among other purposes. Microfinance loans are offered in amounts of USD 212, USD 252, or USD 315, termed Equitas Silver, Gold, and Diamond respectively. In the cities of Chennai, Hyderabad, and Pune, the annual interest rate is 27.5 percent. In northern India, the interest rate rises to 28.5 percent. The term of the loan is 98 weeks, or 49 biweekly meetings. No collateral is required, although eligibility criteria demands that 10 percent of family income must be greater than or equal to one installment for Equitas Silver Loans and greater than or equal to two installments for Equitas Gold and Diamond Loans. Although a household may only take out one loan at a time, previous borrowers are eligible for Equitas Gold loans if they have repaid a loan of over USD 105 and for Equitas Diamond if they have repaid a loan of over USD 147.

Additional Resources:

Bellwether: Home
Equitas: Home
CGAP Microfinance Dealbook
“Equitas Micro Finance Gets Transaction Securitized and Rated by CRISIL, Structured and Arranged by the Institute for Financial Management and Research”, by Laura Anderson, Published by MicroCapital, March 2009
“MicroVentures Reports Investments in Equitas Microfinance of India and Sahayata Microfinance of India, Caritas del Peru and Fondesurco of Peru”, by Sally Levy, Published by MicroCapital, May 2009
MIX Market: Bellwether
MIX Market: Equitas

By Goda Thangada, Research Assistant

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