MICROCAPITAL BRIEF: Reserve Bank of India (RBI) Awards Small Finance Bank Licences to 10 Microfinance Institutions (MFIs)

The Reserve Bank of India (RBI), the central banking authority of the country, recently has given “in-principle approval”[1] of the requests for Small Finance Bank Licences of the following microfinance institutions (MFIs): Jaipur-based Au Financiers, Jalandhar-based Capital Local Area Bank, Ahmedabad-based Disha Microfin, Chennai-based Equitas, Chennai-based ESAF Microfinance and Investments, Bengaluru-based Janalakshmi Financial Services, Guwahati-based RGVN (North East) Microfinance, Chennai-based Suryoday, Bangalore-based Ujjivan and Varanasi-based Utkarsh. In total, 72 institutions submitted applications for a Small Finance Bank Licence from RBI since January 2015 [2]. Holders of Small Finance Bank Licences may accept deposits and lend to “small business units, small and marginal farmers, micro and small industries and unorganised sector entities”[3].

Equitas, Suryoday, Ujjivan and Utkarsh are partially held by Lok Capital, a Mauritius-based venture capital fund that invests in microfinance and other social businesses in India. Lok Capital’s third fund, for which Lok Capital is raising funds at the present time, has a target value of USD 100 million, which is to be invested in MFIs that do not hold Small Finance Bank Licences and to help them grow and prepare to acquire such a license. The organization anticipates that the fund will be closed over “the next couple of months”[1].

Vishal Mehta, a co-founder and partner of Lok Capital, said that “there is a lot of interest among US investors now for the financial inclusion sector in India”[1]. He added that “this only makes a stronger case for a fund like Lok Capital. Now we will have more secure and diversified pipeline for investment available for financial inclusion”[1].

As of 2015, Lok Capital manages two funds with USD 87 million under management and has invested in 23 social enterprises that operate in the areas of microfinance, public health, education and low-cost housing. As of March 2015, Equitas reported total assets of USD 350.7 million, Suryoday reported total assets of USD 120.5 million, Utkarsh reported total assets of USD 150 million and Ujjivan reported total assets of USD 613.4 million.

By Alíz Crowley, Research Associate

About Lok Capital

Lok Capital LLC is a microfinance investment vehicle that is part of the Lok Capital initiative, which was founded in 2000 with support from the US-based nonprofit Rockefeller Foundation. Its goal is to support the development of social enterprises to deliver basic services in a commercially viable manner. The initiative is comprised of Lok Capital, a Mauritius-based venture capital fund that places equity and equity-linked investments in microfinance institutions (MFIs) and social enterprises in the education, healthcare and “livelihoods” sectors; and the Lok Foundation, a nonprofit entity that provides “specialized funding and long-term technical assistance for financial and social inclusion.” Lok Capital makes its investments through two funds, Lok Capital I and II. Lok Capital I was launched in 2006 with USD 22 million in investments from Accion, The Commonwealth Development Corporation (CDC), Développement international Desjardins, Netherlands Development Finance Company (also known by its Dutch acronym FMO), International Finance Corporation (IFC), Kreditanstalt für Wiederaufbau (KfW) and responsAbility Social Investments. The fund’s investments generally range in size from USD 500,000 to USD 3 million. Lok Capital II was closed in 2012 with USD 65 million. Its investors included previous Lok investors IFC, CDC, KfW, FMO and responsAbility along with new investors Proparco and ASN Novib. Further financial information on the organization is unavailable. As of 2015, the third fund of Lok Capital is being raised with a target amount of USD 100 million.

About Reserve Bank of India (RBI)

Reserve Bank of India (RBI) is India’s central banking authority. Established in 1935, RBI undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies (NFBCs). The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in cases of banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. RBI reported total reserves of INR 22.6 trillion (USD 354 billion) as of July 24, 2015.

Sources and Additional Resources

[1] Business Standard, Lok targets those who couldn’t bag small finance bank licence

[2] Reserve Bank of India, Press Releases, RBI grants “In-principle” Approval to 10 Applicants for Small Finance Banks

[3] Reserve Bank of India, Press Releases, RBI releases Guidelines for Licensing of Small Finance Banks in the Private Sector

[4] Lok Capital, Lok Capital Impact Report 2014-15

MicroCapital Universe Profile: Lok Capital

MicroCapital Universe Profile: Reserve Bank of India (RBI)

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