Warburg Pincus strikes maiden MFI deal with bet on Fusion Microfinance

US-headquartered private equity giant Warburg Pincus is leading an investment of Rs 520 crore (around $75 million at current exchange rates) in Delhi-headquartered Fusion Microfinance to mark its first bet on a microlender. 

The Series E investment will include a primary infusion and a secondary sale by early-stage investors, the firms said in a joint statement.

Existing investor Creation Investments has participated in this round while some other investors such as Incofin, NMI, BIO and Small Industries Development Bank of India (SIDBI) have exited the company.   

“Fusion has demonstrated the ability to profitably scale up in a diversified manner,” said Warburg Pincus managing director Narendra Ostawal.

VCCircle had reported in July that Fusion was looking to raise money from a long-term investor.

This fundraise follows an internal round that Fusion completed in February this year and significantly expands its capital base to support its high organic growth, the companies said.

Fusion Microfinance had in February raised Rs 80 crore (around $12 million) in a fresh round of funding led by existing investors Creation Investments, Oikocredit and GAWA Capital.

Fusion also intends to selectively evaluate potential acquisition opportunities, the statement added. 

Fusion founder and chief executive Devesh Sachdev had told VCCircle earlier that the company was scouting for acquisitions to expand its presence in new regions. It was considering buying peer companies with a minimum net worth of Rs 250 crore or a minimum loan portfolio of Rs 800-900 crore.

Fusion’s loan portfolio jumped 88% to Rs 1,558 crore by the end of 2017-18 from Rs 827 crore a year earlier, according to a report by Microfinance Institutions Network (MFIN). The lender had earlier said that it was looking to increase its loan book by 60% to Rs 2,400 crore in the current financial year. 

Founded in 2010, Fusion predominantly operates in rural and semi-urban areas and offers financial services to women. The Delhi-headquartered company has a strong presence in north and central India.

Before its funding round in February, Fusion had raised Rs 400 crore as debt from various financial institutions.

In August 2016, Fusion raised Rs 162 crore ($24 million at the time) led by Creation Investments in a fourth strategic round (Series D) of funding. Others that participated in the funding included a new investor GAWA and existing investors BIO and Oikocredit.

A year before that, the company had raised Rs 53 crore (then worth $8.3 million) in a Series C funding round led by BIO and Oikocredit.

India’s microfinance industry, which has attracted loads of capital from private equity, venture capital and social-impact investment firms, is thriving as growth in its total loan portfolio accelerated last year despite a structural shift.

Warburg Pincus
While this is Warburg’s first investment in a microlender, it had earlier backed non-banking financial company Capital First.

In January, IDFC Bank Ltd said it would acquire Capital First — owned more than a third by Warburg Pincus — in a share swap deal valued at about $1.5 billion.

Last year, Warburg sold a 25% stake in Capital First to a bunch of local and foreign investors including Singapore sovereign wealth fund GIC Pte Ltd for an estimated Rs 1,750 crore ($275 million).

Last week, the PE firm sold a third of its stake in ICICI Lombard General Insurance Company Ltd for Rs 1,142 crore ($164 million) on the secondary market, almost doubling the value of its investment in less than two years.

In July-August this year, Warburg sold part of its stake in Jaipur-based AU Small Finance Bank, earning similar returns.

AU Small Finance Bank went public in July last year, making a strong debut on the stock markets.