MICROCAPITAL STORY: Microfinance Institution Grama Vidiyal Plans to Raise USD 9.7 Million in Private Equity

Grama Vidiyal Microfinance Ltd (GVM) is in talks with private equity firms to raise INR 500 million (USD 9.7 million) to fund a proposed expansion that includes establishing branches in neighboring states as well as recruiting 700 more employees. We currently do not have any information as to which private equity funds have been approached for funding. Founded in 1993 and based in Tamil Nadu, India, Grama Vidiyal Microfinance Ltd is a non-governmental microfinance institution. As of March 2008, its total gross loan portfolio is USD 28.7 million, total assets USD 30.8 million, and total equity USD 4.8 million.

Arjun Muralidharan, chief executive of GVM, states “We will be expanding into neighboring states like Karnataka and Kerala [and] setting up branches there. We will finalize the investor in two months.” Also, elaborating on the expansion plan, Shirley Devaraj, chief operating officer of GVM, has said, “‘By the end of next fiscal, we will increase our branch network by 125 offices to 275 and the number of employees by 700 to 2,200.” GVM also hopes to expand its client base from 370,000 to 750,000 clients in 2009-2010.

The funds raised will also go to meeting the new capital adequacy ratio (CAR), the ratio of an organization’s capital to its risk, set by the Reserve Bank of India (RBI). Because the RBI increased the CAR by two percent to 12 percent for non-banking finance companies, fresh equity is needed, Mr. Muralidharan said. The RIB was established in 1935 and is India’s central bank.

GVM has set ambitious expansion goals. Over the next five years, the company plans to raise INR 3 billion capital (USD 57.8 million), acquire 3 million customers, and to increase outstanding loans to INR 25 billion (USD 480 million). Mr. Muralidharn said the company is planning to borrow INR 3 billion (USD 57.8 million) in 2009-2010. This borrowing, along with the INR 500 million (USD 9.6 million) in equity, will support the aggressive expansion plan. Disbursement during the current fiscal year is around INR 4 billion (USD 77.1 million), he noted.

In May 2008, GVM raised INR 147 million (USD 3.7 million) from Unitus Equity Fund LP, a global growth private equity fund started in 2000, and Vinod Khosla, a venture capitalist whose net worth is upwards of USD 1.5 billion. MicroCapital’s report on this infusion of capital can be found here.

Mr. Muralidharan added that the company is also planning to launch two new products to raise capital next year, the gold loan and the housing loan. Currently, the company offers general loan products, business loans, and seasonal/special products.

By: Andrea Chu

ADDITIONAL SOURCES

Thaindian News, May 1, 2008: “Microfinance firm Grama Vidiyal gets equity funding

India eNews, March 05, 2009: “Microfinance firm Grama Vidiyal plans to recruit 700 people

Business Standard, March 06, 2009: “Grama Vidiyal Microfinance plans to raise Rs 300 crore

MicroCapital Story, June 8, 2007: “Reserve Bank of India Raises Interest Rates, Forcing Microfinance Institutions to do the same

MicroCapital Story, May 12, 2008: “Indian Microfinance Institution Grama Vidiyal Microfinance (GV) Plans Expansion and Receives USD 3.5 Million from Unitus Equity Fund and Vinod Khosla

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