Bangalore-based Ujjivan Financial Services may get a debt investment from the World Bank arm International Finance Corporation (IFC) to the tune of US$40 million (Rs.260 Crore) that may be announced after its Board meeting on Thursday.
IFC’ debt support was an on-going infusion of funds into the microfinance company with which Ujjivan is expected to stabilize growth and manage liability during early years of transition to SFB.
This is addition to what Ujjivan raised from the market issuing its IPO in May this year for Rs 358 crore and managing more than 40 times the amount in a big stellar show of the year. Ujjivan is one of the 8 MFIs approved by RBI to start Small Finance Banks with rural focus.
The transition is expected to raise regulatory costs such as maintenance of CRR, SLR and other provisioning norms starting once Ujjivan becomes an SFB in March 2017. The operating costs such as manpower, branch setup and technology upgradation may have an impact on ROEs and ROAs for the next two to three years, according to analysts, who caution that its net interest margin (NIMs) may decline from the current level of 11 per cent to 8 per cent.
Ujjivan, being a microfinance company, is adept at providing collateral free, small ticket-size personal as well as business loans to women borrowers. It also provides individual loans to Micro & Small Enterprises (MSEs). Headquartered in Bangalore, Karnataka, it has more than 2.5 million borrowers and a loan portfolio of about US$620 million as of September 2015.
Ujjivan is amongst the few large MFIs that focus on providing micro loans to women borrowers in urban and semi-urban areas. Its target customers include self-employed women working as vegetable or fruit vendors, small shop owners, sari sellers, tailors, salaried women working in garment factories, hospitals, cooks, house maids, and piece rate workers involved in incense stick rolling, tailoring etc.
"IFC’s proposed investment will help the company expand the outreach of access to low income borrowers who have little or no access to formal sources of financing and strengthening its balance sheet through availability of long tenor debt during its transformation phase," said the World Bank arm on its website.
On impact, IFC said the new tranche of loan will help in expanding the outreach of access to microfinance to borrowers and also promote a more balanced growth of microfinance by supporting an institution that been a front-runner in adopting technology, and a pioneer in focusing on consumer service and responsible financing and offers customized products for various financial and non-financial needs of its members.