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‘Microfinance Must Go Beyond Micro-Credit’

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Matrix Partners India, a Mumbai-based venture capital firm that manages a corpus of Rs 1,500 crore, has invested Rs 100 crore in Bhartiya Samruddhi Finance (BSFL), the flagship of Hyderabad-based microfinance group BASIX. Existing investors Hivos Triodos Fonds and Lok Capital have also invested Rs 18 crore in this round. Matrix India co-founder and managing director Avnish Bajaj joins the BSFL board. He spoke to BW's Snigdha Sengupta about the deal. Excerpts:

Any particular reason for the investment in microfinance now? Why BSFL?
The timing is incidental. I have been looking at the sector since 2006 in my personal capacity, shortly after the eBay transition (Bajaj co-founded auction site Baazee which was acquired by eBay). I have also always been positive on the sector, though I do believe that the micro-finance must go beyond just micro-credit. The other fundamental tenet is that this business model works if the end borrower is using it for income generation in such a way that he is making more money than he is paying in interest. In the quest for scale, not everybody in the microfinance business has been as disciplined in doing that as they should. What we liked about BSFL, whom we have known for about two years, is that from day one, the founder, Vijay Mahajan's focus has been on livelihood promotion.

That also implies that growth will be slower. How does that sit with your investment objectives?
It makes growth slower and we are okay with that. We prefer a sustainable, slower growth. Most importantly, BSFL lends to people after really closely checking the businesses of the borrowers. They are the most focused on income-generating loans and the most wary of expense loans, which are not sustainable.

How do you view the founder and the management team in BSFL?
The founder is always important but in a business like this, management is equally critical in order to scale the business. The founder, in this case, brought in a CEO, Sajeev Vishwanathan, about 6-8 months ago and he himself has moved into the chairman's role. Vishwanathan has been with Citi for 18 years. The company also has a strong and deep management team in place.

What is the company's shareholding pattern? Is an initial public offering (IPO) on the cards?
In BSFL, the employees and promoters are the largest shareholders, with 33 per cent. We own 18.3 per cent and are the second largest shareholder. IFC, with 11 per cent is the third largest shareholder. The clear objective is that as the company works its way towards an IPO, which is not on the table at present, the promoters should be the largest shareholders and they should clearly hold in excess of 20 per cent post the IPO.

What is your investment horizon for this deal?
We have a 4-5 year investment horizon on this company, which is similar to any other company that we have invested in.

snigdha dot sengupta at abp dot in

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