MICROCAPITAL STORY: Incofin of Belgium Invests in Asomi Finance Private Ltd. in India

Incofin, a Belgian microfinance fund manager that invests in microfinance institutions (MFIs), has taken a 34 percent stake in Asomi Finance Private Ltd. (Asomi FPL) in Assam, India. Asomi FPL is an institution that undertakes microfinance, income generation and development activities in the state. Over 90 percent of its operations is devoted to microfinance, and Asomi has grown from less than 4,000 borrowers in 2005 to over 30,000 reached through 40 branches as of 2008. Incofin was established in 1992, and this is Incofin’s first investment in India.

As reported by MicroCapital in January 2009, Incofin had previously entered an agreement to acquire 25 percent of Asomi in an undisclosed amount via Incofin’s Rural Impulse Fund (RIF) as the sole and lead investor. The investment fund targets rural MFIs where Incofin will specifically guide the RIF to make equity and debt investments in rural MFIs. The fund is made up of 81 percent debt, 11 percent equity, and eight percent quasi equity investments, and the fund size is USD 38 million. Its primary investors include the Belgian Investment Company for Developing Countries (BIO), the European Investment Bank (EIB), the Netherlands Development Finance Company (FMO), the International Finance Corporation (IFC), and a group of private investors (KBC Private Equity, Incofin, MRBB, Volksvermogen, CERA, and BRS).

Established in 2001, Asomi operates in Assam, a region in India that is amongst the poorest in India and is also largely unserved by formal financial institutions. Usually, small entrepreneurs, farmers, or artisans in the region face challenges in securing loans from conventional banks because they often do not have sufficient collateral or regular income to qualify. With microfinance, a small loan would allow an individual in Assam to start or develop their own business and support their own livelihood. The hope would be that these small entrepreneurs in turn would contribute to building the local economy, which would the create jobs and bring stability. According to its Population Consensus in 2001, the population of Assam is 26,638,407 with a rural population of about 82 percent. The economy is heavily reliant on agriculture where nearly 53 percent of its activities are focused in this sector, and those in this sector earn an average daily wage of about Rs. 49.21 (estimated USD 1.03).

Asomi has established its presence in sixteen districts in Assam, and was originally founded as a non-governmental organization. The company acquired its non-banking financial company (NBFC) license from the Reserve Bank of India on October 30, 2008. A non-banking financial company license allows an MFI to receive banking finance. Thus, Asomi transformed itself to a commercial entity in order to receive the equity investment from Icofin. As stated by Subhra Jyoti Bharali, the Chairman and Managing Director of Asomi, the company was formed to raise capital to lend to the rural poor in Assam. “We have been operating through ASOMI, a non-governmental organization, since 2002. But, it was very difficult to raise capital to canalize to the rural mass through a non-governmental organization. Hence, the company was formed to raise capital from the market and provide it to the people who want to engage in income-generating activities to enhance their living standards,” stated Mr. Bharali. According to a CRISIL report on ASOMI in 2007, ASOMI had inadequate capitalization, with capital adequacy of 1.14 percent. The report cites that this low capitalization would restrict ASOMI’s growth.

The debate on commercialization in the microfinance sector is still being played out in the industry. As reported in a previous MicroCapital story, the costs are high for NGOs, and tend to rely on government subsidies and charitable contributions to remain viable. Subsidies and charitable contributions, however, tend to limit the scope and scale for an MFI. However, a turn to the commercial market and application of market principles for capital may increase outreach and scope. As argued in the State of the Microcredit Summit Campaign Report in 2009, commercial investment in microfinance “must be seen as an integral part of the equation in order to reach all of the people who need access to microcredit loans.” However, as argued in the World Bank report, a trend towards commercialization would mean MFIs would risk losing their “social missions.” See also here for further discussion on microfinance commercialization.

Asomi has also requested the International Finance Corporation (IFC), a member of the World Bank that provides investments and advisory services to the private sector in developing countries, to take up equity in the company. The IFC’s Summary of Proposed Investment for Asomi FPL cites that this would help to precipitate a “demonstration effect” and contribute to “building public confidence in financial institutions, encourage more intermediaries to extend financial services to rural areas, and may help in attracting private capital to the region.” The IFC would invest in the form of equity and compulsorily convertible preference shares of up to 20 percent equity stake in Asomi. Moreover, BlueOrchards, a commercial microfinance intermediary based in Switzerland, has expressed an interest to invest in Asomi.

Incofin is a co-operative company (with limited liability) with social objectives. It most heavily funds MFIs in Latin America and the Caribbean with 40 percent of its investments in that region. Currently Incofin supports 64 MFIs in 27 countries and manages USD 160.7 million across all of its funds with USD 26.8 million in assets allocated to MFIs. Incofin has various European banks like Fortis Bank and international fund providers like the International Finance Corporation and World Bank as shareholders of the company.

As of March 2008, Asomi reported to the MIX Market, the microfinance information clearinghouse, that it had generated a 3.97 percent return on assets, a 109.4 percent return on equity. It has total assets of USD 4.7 million and a gross portfolio of USD 4.3 million.