Five Star Business Finance, a SMB lender, raises $100 million in TPG-led funding

The money will help the south-India-focused lender expand its portfolio of loans and help small businesses, without traditional forms of credit history, tap the formal sector

g_107995_bg_shutterstock_291968042_280x210.jpgImage: Shutterstock

Five Star Business Finance Limited (Five Star), a lender to small businesses focused on south India, has signed a definitive agreement to raise $100 million in a funding round led by private equity company TPG.

Existing investors Norwest Venture Partners, an investment fund managed by Morgan Stanley, and Sequoia Capital also participated in the round. Matrix Partners India, the company’s first investor, remains invested in the non-banking finance firm, according to a statement from Matrix.
 
Five Star has provided loans to nearly 40,000 customers. It focuses on lending to the under-banked segment, where customers typically lack the financial records necessary to get loans from banks or other formal-sector lenders. This segment represents a large opportunity that both established businesses like Five Star and new-age lending startups are tapping, with money from investors ranging from TPG to Amazon.

“For many years, small enterprises across India have struggled to gain access to traditional financial systems due to their inability to meet formal requirements for credit. In South India and across the country, demand for funding continues to significantly outpace supply,” Puneet Bhatia, Managing Partner at TPG Capital Asia, said in the statement.

Five Star’s customers include small business owners such as single-shop retailers like vegetable vendors, provision stores, food retailers and self-employed individuals. “Five Star is bridging the funding gap for small business owners, providing them with tailored, risk-conscious financial solutions. We are impressed by the company’s differentiated business model,” added Gaurav Trehan, Partner at TPG Capital Asia.

The non-banking financial company (NBFC) manages approximately Rs 1,220 crore in assets across more than 150 branches. “Our 30 years of experience as a hands-on partner to our customers has led us to establish a business model that directly addresses the needs and risks unique to their businesses,” D Lakshmipathy, Five Star’s chairman and managing director, said in the statement. TPG’s investment is “testament to our success and potential,” he said.

“We believe in their vision of creating a SME-centric financial services institution and welcome TPG to the partnership,” Vikram Vaidyanathan, a managing director at Matrix India, said in the statement.

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