Ahead of IPO, Fusion Microfinance Announces Plan to Generate Secured Loans for SMEs

Fusion Microfinance, which is expected to launch its IPO later this week, plans to boost its secured lending business by introducing a separate NBFC that will target small and medium enterprises (SMEs). The company, backed by global private equity firm Warburg Pincus, piloted a portfolio of secured loans focused on small businesses. It plans to launch commercially next month.

Devesh Sachdev, Founder and Chairman of Fusion Microfinance told PTI, “We have been lending to MSMEs for some time now and currently have 200 million 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. After the IPO, we want to evolve this book and will separate it as a separate NBFC, but we will continue to be part of the parent company Fusion.”

Sachdev pointed out that from now on their company uses its own capital for subsequent loans. However, once a separate entity is launched, he said they will be able to borrow separately from banks. He expects to obtain funds at a slightly cheaper rate from banks. The reason behind the cheaper rate from banks is —- banks are willing to lend/co-lend to MSMEs, and second, their business is completely secure.

Further, Sachdev explained that currently banks are lending through this model at the MFI rate which is over 22% on which the lender earns a margin of over 11% as his cost of funds is around 10.10%.

He further told PTI that “maybe once we grow up we can lower the rates for those borrowers because we will also be borrowing separately for that from the banks.”

Fusion Microfinance provides financial services to underserved women across India to facilitate their access to greater economic opportunities.

New Delhi-based Fusion is expected to launch its initial public offering (IPO) on November 2 to raise approximately 1,100 crores. Subscription to the IPO will be authorized until 4 November.

The initial public offering consists of a new issue with a value 600 crore and an offer for sale (OFS) of 13,695,466 shares by the promoters and existing shareholders. The price range set for the IPO is 350 per share and 368 per share respectively.

As part of the SFO, the selling shareholders who will participate are — Devesh Sachdev, Mini Sachdev, Honey Rose Investment Ltd, Creation Investments Fusion, LLC, Oikocredit Ecumenical Development Co-operative Society UA and Global Financial Inclusion Fund.

Currently, Honey Rose Investment (Warburg) owns approximately 48.65% of the company, while Creation Investments Fusion, Oikocredit Ecumenical Development and Global Financial Inclusion Fund together own 36.56%. Meanwhile, the Sachdevs own around 8.21% in Fusion.

As of June 30, 2022, Fusion’s asset quality is good in the sector with a gross NPA of 3.67% and a net NPA of 1.35%. Its provision coverage rate is 96%. Notably, the microfinance company has about 970 branches in 377 districts in 19 states, but the majority of them are heavily in Bihar and UP. The company’s employee base is around 10,000. Their customers are mainly women living in rural and semi-urban areas.

Fusion’s MSME vertical already has 70 branches run by a 400-member team, and Sachdev said that number will grow as the company grows.

The MFI sector 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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