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Fusion Microfinance which is set to launch its IPO later this week is planning to drive its secured loans business by introducing a separate NBFC that will be targeted toward small and medium-sized enterprises (SMEs). The company backed by global private equity major Warburg Pincus has been piloting a small business-focused secured lending book. It expects to launch commercially by next month.
Devesh Sachdev, founder, and chairman of Fusion Microfinance told PTI, “We’ve been lending to MSMEs for some time now and currently have ₹200 crore assets under management. This is a fully secured loan and we give up to ₹3.25 lakh to borrowers most of whom are existing borrowers. Post-IPO, we want to scale this book up and will be hiving off as separate NBFC but will remain part of the parent Fusion.”
Sachdev pointed out that as of now their company has been using its own capital for onward lending. However, once a separate entity is launched he said they will be able to borrow separately from banks. He expects to get funds at a marginally cheaper rate from banks. The reason behind the cheaper rate from banks is —- the banks are willing to lend/co-lend to MSMEs, and secondly their business is fully secured book.
Further, Sachdev explained that at present, banks are lending through this model at the MFI rate which is upwards of 22% on which the lender earns a margin of over 11% as its cost of funds is just about 10.10%.
He further told PTI that “Maybe once we are get larger we can lower the rates for these borrowers as then we will also be borrowing separately for this from banks.”
Fusion Microfinance provides financial services to underserved women across India to facilitate their access to greater economic opportunities.
The New Delhi-based Fusion is scheduled to launch its initial public offering (IPO) on November 2 to raise about ₹1,100 crore. Subscription in the IPO will be allowed till November 4.
The IPO consists a fresh issue worth ₹600 crore and an offer of sale (OFS) of 13,695,466 equity shares by promoters and existing shareholders. The price band fixed for the IPO is ₹350 per share and ₹368 per share respectively.
Under the OFS, selling shareholders who will participate are — Devesh Sachdev, Mini Sachdev, Honey Rose Investment Ltd, Creation Investments Fusion, LLC, Oikocredit Ecumenical Development Co-operative Society U.A, and Global Financial Inclusion Fund.
Currently, Honey Rose Investment (Warburg) owns about 48.65% of the company, while Creation Investments Fusion funds, Oikocredit Ecumenical Development, and Global Financial Inclusion Fund are holding cumulatively 36.56%. Meanwhile, the Sachdevs hold around 8.21% in Fusion.
As of June 30, 2022, Fusion’s asset quality is good in the industry with a gross NPA of 3.67% and net NPA of 1.35%. Its provision coverage ratio stands at 96%. Notably, the microfinance company has about 970 branches across 377 districts in 19 states, however, the majority of them are heavily in Bihar and UP. The company’s employee base is around 10,000. Their clients are mainly women living in rural and semi-urban areas.
Fusion’s MSME vertical already has 70 branches led by a 400-member team, and Sachdev stated that this number will go up as the company scales up ahead.
The MFI industry in India is led by CreditAccess Grameen which is also the largest in terms of AUM, followed by Fusion, Asirvad Microfinance, Muthoot Microfin, Annapurna Finance, Samasta Microfinance, Satin Creditcare Network, Svatantra Microfin, Spandana Sphoorty Financial, and Belstar Microfinance.
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John Miller has been writing about science, gaming, and tech culture for over a decade. He’s a top-rated reviewer with extensive experience helping people find the best deals on tech and more.
