Sequoia Invests $11.5 Million in Microfinance Fund

Sequoia Invests $11.5 Million in Microfinance Fund
By Margaret Brennan | 29 Mar 2007 | 02:43 AMFont size:
From Google to Yahoo! and YouTube, Sequoia Capital provided venture capital funding to some of the biggest cutting-edge talent in recent memory.

Now the private equity fund is making a big bet on microlending, with its $11.5 million investment in India's SKS Microfinance.

This is "the first pure for-profit private equity play" ever seen in the microlending world, SKS Microfinance CEO Vikram Akula said in an exclusive interview with CNBC. Sequoia's investment makes SKS the largest for-profit microfinance institution in the world.

An investment from a private equity firm of Sequoia's stature is seen as a sign that microfinance is no longer just a socially-conscious investment option, but a potentially profitable one for investors.

Akula pointed to the 99% on-time repayment rate of the fund's 600,000 borrowers as proof of the efficiency of the microfinance model. Akula estimated that SKS' loans have a return on equity of 23%.

The concept of microfinance -- providing small business loans to poor borrowers who lack credit -- was made famous by Nobel peace prize winner Mohammed Yunus, founder of the not-for-profit Grameen Bank of Bangladesh. While the foundations are similar in concept, SKS' version of microlending provides loans that carry interest rates to its 600,000 members in 7,200 villages in rural India.

"We charge average interest rate of 24%," Akula explained that while this rate is high versus  conventional banking standards, "it is actually the lowest cost financing available to the poor."

IPO or Acquisition

Sequioa's stake in SKS's more than $50 million fund allows Akula to expand SKS' technological foundations. SKS will still provide loans to help create cottage industries within Indian villages. Akula said that Sequoia's investment includes an exit clause that within the next 3-5 years, SKS will either have an initial public offering or be acquired. Akula hopes for an IPO on the Indian market.

Sequoia's investment makes it SKS' lead investor. Other stakeholders including Unitus Equity.

While $11.5 million is not much compared to recent record-breaking deals in the U.S. like the  $39 billion buyout of Equity Office Properties, the multimillion dollar sum is significant for a microfinance fund. SKS's average loan size is around $600.

According to the World Bank, foreign private investment has exploded over the past two years to more than $4 billion in 2006. Commercial banks like Deutsche Bank, Citigroup, HSBC and others are entering the market.

The interest of such global players shows that there is "tremendous business potential," according to microcredit specialist Guatam Ivatury of the World Bank. He sees sustainable potential of these funds within five to ten years.

Tapping into the more than two-and-a-half billion "unbanked" individuals worldwide who lack access to financial services is the long-term payoff on investments for firms like Sequioa. The potential to develop these budding entrepreneurs, who borrow from funds like SKS, into potential customers of those retail banks is huge.

Besides creating what he believes is the largest venture-backed microfinance fund in the world, Akula says the success of SKS Microfinance is proof that, "the poor are credit worthy. What they are looking for is the opportunity to access working capital."

Comments

[Dr. G.C. Baidya]

Sub.:- An application for   loan fund

 Greetings from KDS

Sir,
 
I would like to inform you that Kotalipara Development Society,Barasat, Kolkata, West Bengal is a Non-Govt.Social Welfare Organization working in the field  of Rural Development for the poor people especially Women .It is established in 1991.
 
But it is established as a Micro-finance Institute since 1997. It is the faster growing on Micro-finance Institute and its stand 2nd position in the Easter Region in West Bengal . The expansion period of this Organization is mainly in the year 2005.
 
Our Micro-finance status is comfortably appreciable. At present in our fold there are 103 branch offices covering 10 districts, 62 blocks,1995 villages,7121 groups, 115034 members and 84458 active borrowers. The cumulative amount of loan disbursed by our Organization upto 31.03.07 is Rs. 521047289/- and the outstanding of loan thereof is Rs. 239587278/-. The repayment rate is 99.71%.
 

For your kind information we are organizing
Health project
Education
Water Harvesting
vocational training
RCH, etc.

Later on we are informed you about your proposal
 
With thanks,
 
Yours sincerely,
 
 
(DR.G.C.BAIDYA)
Chief Executive Director

[Vikash]

Hi,
plz get in touch with me if you are looking to develop the microfin business ...I am interested and know people who are interested here in US
vikash
vkumar@fas.harvard.edu

[Vikash]

Hi,
plz get in touch with me if you are looking to develop the microfin business ...I am interested and know people who are interested here in US
vikash
vkumar@fas.harvard.edu

[Vikash]

Hi,
plz get in touch with me if you are looking to develop the microfin business ...I am interested and know people who are interested here in US
vikash
vkumar@fas.harvard.edu

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