Small Business Loans

Small enterprise financing in India has traditionally been restricted to banks – primarily public sector banks. A large proportion of the small enterprises continue to lack access to institutional credit. Of the 2.6 crore enterprises in India, approximately 5% have access to formal finance. The total demand for finance is estimated to be INR 32, 50,000 crore with 80% of the demand originating from the informal sector. The share of formal finance to the sector is INR 7, 00,000 crore. A further analysis reveals that the total institutional credit to enterprises having capital investment up to Rs 25 lakh is approximately INR 2, 30,000 crore as per the SIDBI report in 2012 and IFC report in 2012. About 90% of the institutional credit has come from scheduled commercial banks with other players being regional rural banks and urban cooperative banks. An estimated 67% of enterprises remain untouched by the formal financial sector.

While banks have been active in the SME space for larger enterprises, microfinance institutions (MFIs) and the Self-Help Group-Bank Linkage Programme (SHG-Bank Linkage) have been successful in meeting the credit needs for household-based income-generating activities and very small enterprises (commonly, provision stores or tea stalls). Therefore, there is clearly a significant “missing middle” segment that has been largely left out by the mainstream credit delivery channels. This segment consists primarily of relatively unorganized sole proprietorship or partnership firms, known as Own Account/Micro Enterprises, thus giving rise to the requirement of enterprise-based lending.

IFMR Capital Partners in Small Business Loans
IFMR Capital’s partners in this space have demonstrated their financial ingenuity by developing a very innovative and specialised model of lending to small business and enterprises. The origination model relies on an in-depth understanding of the customer segment in the target geographies. Across all the partners, the origination model thrives on independent and separate business and credit functions. All partners have customised their processes to effectively assess the enterprise for credit delivery.

Each partner has developed templates for margins and cash flow analysis of the businesses that are financed. Wherever there are no documentary proofs, there is focus on understanding and verifying the underlying cash flows of the business through proxy information and multiple checks.

Portfolio quality of these partners has continuously been exceptional/superior in comparison to the industry standards. Gross NPA of all IFMR Capital partners in this space has been in the range of 0-2% against an average of approximately >3.5% as of March, 2015. The robust origination, collection and delinquency management processes have resulted in steep reduction from PAR>0 to PAR>90 to PAR> 180.

The cumulative Asset Under Management (AUM) of SBL partners of IFMR Capital has doubled over the last one and half years from approximately INR 2000 crore to INR 4000 crore. All NBFCs in the market of lending to MSMEs are currently very small in terms of the small business loan portfolio that they manage. The aggregate AUM of all these entities is estimated at INR 10,000 crores, with individual AUM under INR 1000 crore (with the exception of MAS Financial and Intec Capital).

The asset class has witnessed significant equity interest from a variety of investors: early stage investors such as Elevar and Lok, development financial institutions such as FMO, Proparco, Lok Capital, DEG and SIDBI, as well as mainstream private equity players such as Matrix Partners, Westbridge, Warburg Pincus, Aspada, SAIF Partners, Khosla Impact, MSDF, Omidyar, Sequoia, Chrys Capital and fund advised by MOPE. Given the nascent stage and vast demand, IFMR Capital expects significant growth from existing players, as well as the emergence of newer players. In the last two years, the SBL partners of IFMR Capital have seen more than INR 500 crore of equity infusion from institutional investors.

Removal of Priority Sector Lending (PSL) benefits: Banks have been the major source of funds to NBFCs for years. However with the removal of priority sector benefits to NBFCs by the RBI, smaller and newer NBFCs will face challenges and delays in scaling up their business.
Evolution of MSME Lending
The Micro, Small and Medium Enterprises sector has grown at a quicker pace than India’s GDP ... Read more

Case Study : IFMR Capital Astrae
IFMR Capital structured a transaction in 2015, assigning Pass through Certificates (PTCs) to three tranches of investors, A1, A2 and A3 ... View

Case Study : IFMR Capital Oceanus
IFMR Capital structured a transaction in March, 2015, assigning Pass through Certificates (PTCs) to two tranches of investors, A1 and A2 ... View


VL Ramakrishnan (CFO)

The CBO product is yet another innovation brought forth by IFMR Capital in the microfinance sector that allows MFIs access to low-cost funding from capital markets. The CBO product will open up new vistas for MFIs as the sector enters the next phase of growth. Suryoday looks forward for greater participation in such transactions" - Sanjay Tiwari, AVP Finance, Accounts & Treasury Suryoday Micro Finance "IFMR Capital has been a pillar of support to us since we started this company. We find IFMR Capitalto be always responsive to the needs of the customer. They are ahead of the curve in terms of bringing
forth relevant and efficient solutions to their customers.

VL Ramakrishnan (CFO)
Suryoday Microfinance Private Limited

V S Radhakrishnan

This is the largest single investor subscription to NCDs issued by JFS. Most microfinance institutions are primarily funded by banks and private equity players and it is therefore critical for MFIs to diversify their sources of funding. For Janalakshmi, both the transactions are important milestones in our growth story and we are pleased to have worked with IFMR Capital in its smooth execution,

V S Radhakrishnan, CEO,
JFS on an IFMR Capital arranged NCD issuance

G. Srikanth (CFO)

It has been a pleasure working with IFMR Capital. They have been a pillar of strength through the period when the industry was crippled by the Andhra Pradesh crisis, characterized by portfolio de-growth resulting from the complete cessation of liquidity, especially to the small and mid-sized MFIs. IFMR Capital was able to support its partner MFIs through a mix of securitization transactions, NCD issuances and guarantee backed structures which ensured that they managed to stay afloat. While better times augur for the industry, the market penetration achieved by IFMR Capital would serve as a perfect launch pad for us to catapult to the next level.

G.Srikanth (CFO),
Asirvad MicroFinance Private Limited


The CBO product has opened up microfinance companies to a new set of lenders, much needed during the second growth phase of the microfinance industry. As a small microfinance company, Svasti appreciates the availability of a platform with benefits of a multi-originator securitisation transaction without the seasoning constraints. Svasti looks forward to participating in more CBO transactions during the year.

Narayanan, CIO,
Svasti Microfinance

Abhisheka Kumar (CFO)

IFMR Capital's contribution to the microfinance sector in general and Utkarsh in particular is immense, especially post the Andhra crisis. They ensured liquidity to the sector through innovative securitization structures, arranging guarantees and NCDs from multilateral agencies and by providing short-term loans thus helping microfinance institutions diversify funding instruments. Apart from arranging funds, IFMR Capital’s efforts at capacity building for microfinance institutions is commendable.

Abhisheka Kumar (CFO)
Utkarsh Micro Finance Private Limited

Jugal Kataria (CFO)

Over the years IFMR Capital has created innovative structures for MFIs to raise funds. This has helped to sustain the sector through difficult times. Satin has been associated with IFMR Capital for nearly five years. We value the experience and expertise which the IFMR Capital team brings in their dealings with all stakeholders. Their professional approach and willingness to walk the extra mile is reassuring.

Jugal Kataria (CFO)
Satin Creditcare Network Limited
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