About the Fund

 

Background to the Fund

The microfinance sector in India is one of the largest financial access movements in the world. The sector in India has been constrained by the lack of access to a diversified source of growth capital, especially with a medium to long term tenor, which in turn can be attributed in part, to a nascent finance market-place. The Fund identifies this market need as an opportunity to channel institutional domestic and offshore capital to the emerging asset class of Indian microfinance debt instruments.

Graphic 1

Microfinance institutions in India reach out to more than 25 million borrowers. However, when compared to the number of unbanked population, the outreach is still small. As per the World Bank, only 35 per cent of the adult Indian population (defined as 15 years of age and above) has a formal bank account and only 8 per cent borrow form financial institutional sources. In this respect, the provision of growth capital in the microfinance sector can materially alter the level of financial inclusion in India. The progress towards financial inclusion has important implications for poverty alleviation given the positive externalities to provision of financial services.

Graphic 2

An important aspect for the development of the Indian microfinance sector is the presence of a vibrant and mature bond market for microfinance institutions. However, the bond market in India for microfinance institutions is nascent. The total debt requirement of the sector is much higher and current bond issuances meet a very small proportion of the debt requirement of microfinance institutions. The issuance of Non-Convertible Debentures (NCDs) has increased in recent years, but is still small compared to bank funding.

Graphic 4

The Fund’s asset allocation and instrument mix will be pivotal in filling important gaps in the type of funding available to microfinance institutions. The current domestic sources of funding are heavily skewed towards secured short term funding. The provisioning of longer term secured and subordinated debt will enable the microfinance institutions to invest in both growing their loan portfolio as well as information systems, training, branch expansion and fixed assets.

Graphic 3

The Fund also seeks to develop a mature debt capital market for microfinance institutions in India by diversifying the sources of funds. Microfinance institutions in India are primarily dependent on bank funding for their on-lending operations. However, there is increased realization to diversify the sources of funding as a risk mitigating strategy. The opening of a new line of funding will be a significant step in supplementing the bank and other funding to the microfinance sector.

Investment Objective/Purpose

The broad objective/purpose of the Fund is to promote financial inclusion in India by facilitating development of the Indian microfinance sector. The Fund seeks to achieve this by investing in various securities/instruments of microfinance institutions and its underlying assets.

Investment Strategy

The Fund shall invest primarily in Social Ventures. The investment strategy of the Fund is provided as follows:

• Investing in a mix of debt – Providing long term growth capital in the form of mezzanine debt, medium to long term senior secured debt, and other permissible securities in accordance with the Regulations which will fill the existing gap in the capital structure of Indian microfinance institutions.

• Alternate source of domestic funding – The Fund seeks to enable diversification by way of both funding sources and type of funding for Indian microfinance institutions.

• Access to bond market – The Fund will help in the development of bond markets for Indian microfinance institutions.

Expertise

IFMR Trust is a private trust set up with a mission to ensure that every individual and every enterprise has complete access to financial services. Companies promoted by IFMR Trust form the IFMR Group, and as a part of the mission to promote financial inclusion, have played an important role in providing access to funding towards the development of the Indian microfinance sector.

IFMR Group’s work in the Indian microfinance sector provides the Investment Manager with a strategic outlook on the sector and the Fund has been conceived based on this outlook.

The IFMR Group has been a pioneer in capital market innovations, having been associated with the first ever listing of a securitised paper on the Bombay Stock Exchange. IFMR Group generally invests in securitisation transaction, typically taking positions that are subordinated to senior investors, which receives repayments only after the senior investors are fully paid out.

In addition to participating in the securitisation transactions, IFMR Group companies have also taken balance sheet exposures on several microfinance institutions in the form of term loans, working capital lines and guarantees.

IFMR Group also provides a complete range of financial services through a unique branch based business model called the Kshetriya Gramin Financial Services (KGFS). A KGFS (KGFS transliterates to Regional Rural Financial Services) is a local financial institution offering financial products & services in a specific geographic area catering to all the financial needs of the local population. It follows a customer centric model wherein financial products and services are offered through the unique ‘Wealth Management Approach’. IFMR Group has promoted access to financial products through the KGFS Model.

The Investment Manager will seek to use the collective knowledge and the expertise of the IFMR Group in the microfinance sector.

 

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Legal Disclaimer:

THE FUND MENTIONED HEREIN ARE NOT BEING OFFERED FOR SALE OR SUBSCRIPTION, BUT ARE BEING PRIVATELY PLACED WITH A LIMITED NUMBER OF HIGH NET WORTH INDIVIDUALS, CORPORATES, BANKS, FINANCIAL INSTITUTIONS, SOCIAL VENTURE FUNDS, FOUNDATIONS, SOCIETIES, CO-OPERATIVE SOCIETIES AND ANY OTHER PERSON WHO IS PERMITTED TO INVEST UNDER THE REGULATIONS. THE FUND IS PROHIBITED FROM MAKING AN INVITATION TO THE PUBLIC TO SUBSCRIBE TO UNITS. THE UNITS CANNOT BE SUBSCRIBED BY SUCH PERSONS, CORPORATIONS OR ENTITIES WHICH CANNOT ACQUIRE OR HOLD THE UNITS WITHOUT VIOLATING APPLICABLE LAWS OR REGULATIONS APPLICABLE TO THEM OR WHO MIGHT EXPOSE THE FUND OR ITS CONTRIBUTORS TO ADVERSE TAX OR REGULATORY CONSEQUENCES.

THE FUND HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE US SECURITIES ACT, 1933 OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE FUND MAY NOT BE OFFERED, SOLD OR DELIVERED DIRECTLY OR INDIRECTLY IN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF ANY “U.S. PERSON” AS DEFINED IN REGULATIONS UNDER THE US SECURITIES ACT EXCEPT PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO REGISTRATION UNDER THE US SECURITIES ACT AND APPLICABLE STATE LAWS. THE FUND IS BEING OFFERED OUTSIDE THE UNITED STATES PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER REGULATION S UNDER THE US SECURITIES ACT. THE FUND WILL NOT BE REGISTERED UNDER THE US INVESTMENT COMPANY ACT, 1940. INVESTORS ARE OBLIGED TO NOTIFY THE FUND IMMEDIATELY IF THEY BECOME U.S. PERSONS OR OTHERWISE HOLD UNITS THAT MIGHT RESULT IN THE FUND INCURRING ANY LIABILITY TO TAXATION OR SUFFERING PECUNIARY DISADVANTAGES THAT THE FUND MIGHT NOT OTHERWISE INCUR OR SUFFER. THE INVESTMENT MANAGER RESERVES THE RIGHT TO TERMINATE THE INVESTMENT IN FUND OR FORFEIT INVESTMENTS IN FUND OR COMPULSORILY REDEEM/REPURCHASE UNITS BENEFICIALLY OWNED BY ANY INVESTOR IN THESE CIRCUMSTANCES.

UNLESS REQUIRED UNDER THE APPLICABLE LAW, THE INVESTMENT MANAGER WILL NOT BE REGISTERED/REGULATED AND/OR APPROVED BY THE SECURITIES AND EXCHANGE BOARD OF INDIA OR ANY OTHER LEGAL OR REGULATORY AUTHORITY IN INDIA. THE TERMS OF THE MATERIAL FUND DOCUMENTS WILL ALWAYS BE SUBJECT TO APPLICABLE LAWS AND REQUISITE CHANGES WILL BE CARRIED OUT TO BE IN COMPLIANCE WITH APPLICABLE LAWS FROM TIME TO TIME.

THE INFORMATION CONTAINED HEREIN DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE UNITS OF THE FUND DESCRIBED HEREIN. THE INVESTMENT MANAGER RESERVES THE RIGHT TO WITHDRAW OR MODIFY THIS OFFERING.

NEITHER THE FUND, THE INVESTMENT MANAGER, THE TRUSTEE NOR ANY OF THEIR RESPECTIVE AFFILIATES OR REPRESENTATIVES MAKE ANY EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY AS TO THE ADEQUACY OR COMPLETENESS OR CONTENTS OF THIS WEBSITE AND THE INFORMATION HEREIN, OR, IN THE CASE OF PROJECTIONS, AS TO THEIR ATTAINABILITY OR THE ACCURACY OR COMPLETENESS OF THE ASSUMPTIONS FROM WHICH THEY ARE DERIVED, AND IT IS EXPECTED THAT EACH PROSPECTIVE INVESTOR WILL PURSUE ITS OWN INDEPENDENT DUE DILIGENCE. IN PARTICULAR, WITHOUT LIMITATION TO THE GENERALITY OF THE FOREGOING, NEITHER THE FUND (REPRESENTED BY THE TRUSTEE), THE TRUSTEE, THE INVESTMENT MANAGER NOR ANY OF THEIR RESPECTIVE AFFILIATES OR REPRESENTATIVES ASSUME ANY RESPONSIBILITY FOR THE ACCURACY OF THE STATISTICAL DATA AND OTHER FACTUAL STATEMENTS CONCERNING INDIA AND ITS ECONOMY CONTAINED IN THIS MEMORANDUM WHICH HAVE BEEN OBTAINED FROM PUBLICLY AVAILABLE DOCUMENTS OR OTHER SOURCES CONSIDERED RELIABLE BUT WHICH HAVE NOT BEEN PREPARED OR INDEPENDENTLY VERIFIED BY THE FUND, THE TRUSTEE, THE INVESTMENT MANAGER OR ANY OF THEIR RESPECTIVE AFFILIATES OR REPRESENTATIVES OR THEIR RESPECTIVE ADVISORS. CERTAIN INFORMATION CONTAINED IN THIS WEBSITE CONSTITUTES “FORWARD-LOOKING STATEMENTS,” WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS “MAY,” “WILL,” “SHOULD,” “EXPECT,” “ANTICIPATE,” “TARGET,” “PROJECT,” “ESTIMATE,” “INTEND,” “CONTINUE” OR “BELIEVE,” OR THE NEGATIVES THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. DUE TO VARIOUS RISKS AND UNCERTAINTIES, ACTUAL EVENTS OR RESULTS OR THE ACTUAL PERFORMANCE OF THE FUND MAY DIFFER MATERIALLY FROM THOSE REFLECTED OR CONTEMPLATED IN SUCH FORWARD-LOOKING STATEMENTS.

IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE FUND AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY REGULATORY/STATUTORY AUTHORITY.

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