Global private equity player Warburg Pincus has made a debut investment in the Indian microfinance (MFI) space as it announced on Tuesday that its affiliate has acquired a significant minority stake in Fusion Microfinance, a New Delhi-based non-banking finance company-MFI, by leading a Series-E investment round worth Rs 520 crore.
The investment round includes both a primary fund raise and secondary sale by early stage investors.
Creation Investment, an existing investor, has also participated in this round. Early investors — Incofin, NMI, BIO and SIDBI have made successful exits.
With the close of the funding round, Narendra Ostawal, MD at Warburg Pincus, would be joining the board of Fusion Microfinance. The talks between Warburg Pincus and Fusion Microfinance had commenced as early as March this year.
By July, the documents were signed, said Ostawal who pointed out that only a couple of companies were meeting the private equity firm’s criteria when it began searching for a possible deal.
“We wanted a player that had diversified across multiple geographies and didn’t have a high concentration on any one particular state or region.
“We had a strong preference for microfinance businesses that were more rural focussed. We were also looking for a company that had raised equity during the demonetisation phase, to be able to wait through the problems, had a clean book and had a team that was professionally run. If you put all these filters, not many companies show up on the other side. This is how we got to Fusion,” Ostawal said.
Devesh Sachdev, CEO and founder at Fusion Microfinance, told FE over phone that four-to-five players showed interest when the funding talks had begun. “When we started our talks with Warburg, we found that there was a lot of alignment,” Sachdev said. The funds raised will be used for organic growth that includes opening branches, increasing disbursements, making investments in technology, among others.
Fusion Microfinance is also looking at inorganic growth opportunities and is likely to target companies that make a strategic and cultural fit. “We would also like to look at some inorganic opportunities. We are looking at some strategic fit —either in form of geography, team, technology,” Sachdev said.
Spark Capital was the exclusive financial advisor to the transaction, according to the release.
Fusion Microfinance, set up in 2010, is an NBFC MFI which operates in a joint liability group lending model of Grameen. The firm claims that its clients comprise of 100% women living in rural and semi-urban areas. The firm posted a net profit of `33 crore for six months to September 2018.
Fusion remains confident that it is likely to record almost a 74% growth for the fiscal year 2019 in terms of gross loan portfolio. “We are growing very well. In terms of our gross loan portfolio, we closed March 2018 at around `1,500 crore and by March 2019, we will close around `2,600 crore — a growth of about 74%,” Sachdev said.