MICROCAPITAL STORY: Hyderbad-based Spandana Microfinance Seeks to Raise Rs 300 Crore (USD 63.7 million) by June

According to a press release in The Economic Times of India, Spandana Sphoorty Financial Ltd. is set to raise Rs. 300 Crore (USD 63.7 million) in equity funding and is currently in talks with over two dozen investors. The deal would raise the company’s valuation to Rs. 1,800 Crore (USD 382.2 million). Spandana intends to use the funds to expand and strengthen its capital adequacy ratio. The Reserve Bank of India (RBI) raised its capital adequacy requirements (CRAR) for non-bank financial institutions last August, requiring institutions to meet a 12 percent CRAR by April 2009 and a 15 percent CRAR by April 2010. Spandana’s CRAR stood at 19.5 percent last fiscal year. To read a MicroCapital story on the RBI’s new regulations, click here. Currently Mumbai-based JM Financial holds an 18 percent stake in the microfinance institution, private equity fund Valiant holds 11 percent, Lok Capital has a 5 percent stake and another 15 percent is held by senior employees, with this round of funding their stakes will be diluted.

Other Indian MFIs are also looking to raise equity funding, despite the ongoing credit crisis. As reported by MicroCapital, SHARE Microfin also has plans to raise USD 50 million in equity. Either transaction would be the largest microfinance institution (MFI) transaction since SKS Microfinance raised USD 75.4 million last fall. To read a MicroCapital story about that deal, click here. According to an article on the website VCCircle, investors like Lightspeed Venture Partners, Battery Ventures, and India Value Fund are now looking at investments in the microfinance sector.

According to the Economic Times press release, Spandana also plans to open up healthcare facilities, including at least five maternity hospitals by the end of this fiscal year. “We are currently doing a pilot project and will set up one hospital in the city in a month’s time. By the end of the fiscal, we will have five such hospitals. Besides providing access to financial services, it is very necessary to cater to health services for the poor,” said Ms Reddy. The hospitals will be started by Spandana Society, a Guntur-based NGO, which Ms Reddy had launched in 1998. Spandana Sphoorthy Financial is a separate entity. Per the press release, Spandana Society will invest about Rs. 3 Crore (USD 637,000) in each hospital and provide microfinance services to patients, no further information was immediately available.

The expansion into healthcare by Spandana follows a trend by several other MFIs to offer additional services to the poor. A recent MicroCapital paper wrap-up examined the case of three MFIs in Bangladesh that offered health micro-insurance schemes. Other socially responsible initiatives include efforts to tie in microfinance with waste management, and environmental efforts such as the forum on Microfinance and Climate Change hosted by MicroLinks, also reported by MicroCapital. A recent Microfinance Insights survey, summarized in this MicroCapital Story, found that 85 percent of MFIs and 61 percent of microfinance investors say MFIs should offer more than financial services.

According to the MIX Market, the microfinance information clearinghouse, Spandana was established in 1998 and has approximately 1.2 million active borrowers. As of March 31, 2008 Spandana’s gross loan portfolio was USD 182.2 million and total assets were USD 208.9 million. As of the same date, the institution’s debt-to-equity was 8.56, ROE was 53.62 percent and ROA was 4.34 percent.

By Laura Anderson, Research Associate

Additional Resources:

The Economic Times: Spandana to raise Rs 300 cr

Reserve Bank of India: Home

Spandana Microfinance: Home

MicroCapital Story: Change in Indian Capital Adequacy Standards Affects Microfinance Institution

MIX Market: Home, Spandana Sphoorthy Financial Profile

MicroCapital Story: Share Microfin Seeks to Raise USD 50 Million From International Finance Corporation (IFC) and Others

VCCircle: Share Microfin to raise $50 million from IFC, Others

Microfinance Insights May/June 2009 Magazine

MicroCapital Story: 85 Percent of Microfinance Institutions (MFIs) and 61 Percent of Microfinance Investors Say MFIs Should Offer More than Financial Services According to Microfinance Insights Survey

MicroCapital Paper Wrap-Up: “Health Microinsurance: A Comparative Study of Three Examples in Bangladesh” by Mosieh Ahmed, Syed Khairul Islam, Md. Abul Quashem and Nabil Ahmed, CGAP Working Group on Microinsurance, Case Study No.13: September 2005