MICROCAPITAL STORY: Reliance Capital Enters First Phase of Microfinance Initiative in India

As posted by MicroCapital on Thursday, Reliance Capital of India, a publicly-traded financial institution offering a wide range of services and reporting March 2007 total assets of USD 1.5 billion, announced a new microfinance initiative on March 3rd beginning with the financing of two microfinance institutions (MFIs) based in Gujarat state. As stated in the press release, MAS Financial Services Limited (MFSL) and Vardan Trust received the first checks and Reliance Capital plans to continue the first phase of the initiative in Maharashtra state before expanding nation-wide at an undetermined date. Mr. K. V. Srinivasan, the Deputy CEO of Reliance Consumer Finance—a division of Reliance Capital offering loans for a variety of products—expressed that the methodology of the initiative will be to lend to MFIs which will then on-lend to individuals, self help groups (SHGs), and other joint liability microfinance structures. SHGs are unions of individuals, usually connected by geographical location, which organize to take advantage of the financial services that can be utilized from their collective assets.

Founded in 1988 and incorporated in 1995, Ahmadabad-based MFSL which does not report to the MIX Market, the microfinance information clearinghouse, makes its most recent audited financial reports (September 2007) available through its web site. Total assets for MFSL were INR 1.3 billion, or USD 32.4 million, and the institution’s loan portfolio was nearly INR 1 billion (USD 24.5 million). MFSL has over 250,000 customers, 61 branches in Gujarat state, and a net income as of INR 81.1 million, or more than USD 2 million. Notably, the venture capital fund, Bellweather Microfinance Fund (BW), invested USD 1.5 million in MFSL in July 2006, as reported by MicroCapital.

The MIX Market records BW investments in seven MFIs totaling USD 6 million as of July 2007, but no comprehensive list was available at the time of writing. Founded in 2005 in Hyderabad, India, through collaboration between the Netherlands-based Hivos-Triodos Fund (HTF) and the Gray Ghost Microfinance Fund (Gray Ghost) located in Atlanta, Georgia, BW was the first Indian microfinance equity fund, as stated on Gray Ghost’s web site. More on Gray Ghost and its relationship with BW can be found in this 2007 Who’s Who MicroCapital article.

Vardan Trust, a non-governmental organization (NGO) offering micro credit loans since 2003, reached nearly 8,300 clients in 2007 and reported total assets to the MIX Market of USD 1.1 million. Currently undertaking the process of transformation to a non-banking financial company (NBFC), the Gujarat-based institution, which has a loan portfolio of USD 843,000, was recently reported on by MicroCapital. Vardan Trust’s return on assets (ROA) is 0.60 percent and its debt to equity ratio is 14,000 percent.

The Microfinance Gateway, an online resource providing research, news, organization profiles, and other microfinance-related information, reported in 2006 that 20 percent of low-income Indian citizens had access to financial services. Reliance Capital’s market entery as a financer of on-lending institutions further demonstrates the growth potential of Indian microfinance. Other mainstream banks participating in Indian microfinance include ICICI Bank, the Housing Development Finance Corporation Bank Limited (HDFC), and Axis Bank (formerly UTI), as previously reported by MicroCapital.

Reliance Capital was incorporated in 1985 and began merchant banking activities in 1990, according to Moneycontrol.com, an online financial news service covering Indian markets. In its March 2007 annual report, Reliance Capital had total income of USD 200 million and a debt to equity ratio of 0.28:1. The organization is the financial arm of billionaire Anil Ambani’s Reliance group.

By Anthony Busch, Research Assistant

Additional Resources:

Axis Bank: Home

Gray Ghost Fund: Home, Contact, Bellwether Fund

Hivos-Triodos Fund: Home

Housing Development Finance Corporation Bank Limited: Home

ICICI Bank: Home

MAS Financial Services Limited: Home, Financial Highlights

MicroCapital article, August 17, 2007: “Bellwether Microfinance Fund Purchases $1.5 Million in Shares from MAS Financial Services in Microfinance Investment”

MicroCapital article, March 6, 2008: “Billionaire Anil Ambani’s Reliance Capital Launches Microfinance Initiative to Reach Rural Poor”

MicroCapital article, September 1, 2006: “Commercial Banks in India Delve into Microfinance Investments”

MicroCapital article, August 13, 2007: “Gray Ghost Microfinance Fund LLC”