News from CDC
18 December 2013
CDC backs Indian microfinance company Equitas with US$16 million direct investment
CDC, the UK’s development finance institution, has today announced a new US$16 million direct investment in Indian microfinance company Equitas Holdings Pvt Ltd (“Equitas”). CDC’s equity investment will support the Chennai-based company’s growth across the country and allow it to reach more poor and unbanked customers with a broader range of financial services.
Equitas is one of the top 10 microfinance institutions (MFIs) in the country, with a borrower base of 1.5 million customers across eight states. The company has also recently expanded the financial services it provides by offering lending for affordable housing and financing for commercial vehicles.
Since its creation in 2007, the company has grown rapidly to become one of the leading microcredit businesses in India. CDC’s investment is part of a financing package of US$36 million that includes additional funding from FMO (the Dutch DFI) and other investors.
The company predicts that the new financing will:
- help Equitas reach 5.5million customers by 2018 (up from 1.5 million today) across all three business units;
- boost its loan portfolio to US$2 billion (from US$ 235 million); and
- grow its network of branches from 350 at present to 825 in 2018
Equitas operates its three businesses through close to 350 branches across eight Indian states and one union territory. (Tamil Nadu, Maharashtra, Rajasthan, Karnataka, Gujarat, Madhya Pradesh, Chhattisgarh, Andhra Pradesh and Pondicherry.)
Equitas has started operating in the area of affordable housing through Equitas Housing Finance Pvt Ltd and used commercial vehicle financing through Equitas Finance Pvt Ltd to cater to the relatively unbanked population in these financial services sectors. Both organisations are part of the Equitas group into which CDC is providing equity.
Equitas is widely acknowledged for following best practices in responsible financing and corporate governance. The company was an early endorser of the Smart Campaign (www.smartcampaign.org) and has integrated robust systems on client protection. Equitas also provides a variety of corporate social responsibility benefits to its customers, such as vocational training as well as quality, affordable
education for their children.
Maria Largey, CDC’s Microfinance Investment Manager said:
“Despite the impressive growth in the microfinance sector during the last five years, there remains considerable, unmet demand in the market for basic financial services. Equitas has shown remarkable growth in South India and CDC’s investment provides the capital for the company to further expand through new branches in other parts of the country, offering new services to thousands of financially excluded customers in India. Importantly, Equitas’ growth has been and will be characterised by a strong commitment to responsible and ethical standards.
“Equitas’ expansion beyond simple microcredit services means that its clients can access finance for the purchase of second hand commercial vehicles, enabling them to open up new opportunities for themselves and their families and turn from being a driver to an owner. Their housing finance company helps people who run businesses in the informal sector to improve or build a home. In doing so, Equitas is reaching people who are almost fully excluded from the formal financial sector.”
This is CDC’s first direct investment in an MFI since the launch of its new strategy in 2012 which enables CDC to make direct equity and debt investments as well as to continue to commit capital to third party funds. CDC has a microfinance portfolio (through its funds investment) valued at US$160 million, with 32% in Indian MFIs.
Maria Largey added:
“CDC's investment will underline the faith in the sustainability of the microfinance business following the changed regulatory environment in India. It will also build investor confidence in institutions like Equitas who have taken a diversified approach and offer a broader range of financial services to low income households.”
Mr. P.N. Vasudevan, Managing Director of Equitas said:
“The Indian Microfinance sector is going through systemic changes and Equitas is at the forefront on setting new benchmarks in this sector. We value this investment by a marquee investor like CDC and reinforcement of support by our existing investors as we seek to make Equitas, a robust and diversified NBFC catering to segments of society not catered to by the mainstream financial markets.”
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