Paramesan Gowda, 48, has been running a makeshift sandwich stall outside the BSE for many years. Given his humble business, he is not the typical customer to whom traditional bankers feel inclined to lend. With its overemphasis on paper work and address proofs, India’s banking and financial services system is not primed to give him credit. Hence, despite being in the heart of India’s financial nerve centre, Dalal Street, Gowda for long lingered beyond the fringes of the financial system, deprived of any formal channels of credit to grow his sales.
Until, that is, Mumbai-based Essel Finance Business Loans—a non-banking financial company (NBFC) that specialises in small business loans—sanctioned a Rs 30 lakh loan to Gowda in June 2014. Essel Finance Business Loans studied his business closely for two days and realised he had steady cash flows. Gowda repaid his loan in 13 months.
Essel Finance Business Loans may be the face of the help Gowda was getting, but there is another force that has enabled this support: IFMR Capital, a Chennai-based NBFC, which helps Essel Finance Business Loans meet its cash requirements.
IFMR’s relevance cannot be overstated. Even the NBFCs and microfinance institutions (MFIs) that lend directly to people like Gowda—they are called originators—find themselves stonewalled when trying to access capital from traditional banking channels. Enter IFMR Capital, which either lends directly to originators or connects them to cash-rich institutional investors like mutual funds and insurance companies. It has devised one-of-its-kind securitised debt products, or securitisation structures (see box ), through which investors can put their money in originators.
“After understanding our business, they lend us the required capital or get a financial institution to do that. IFMR Capital audits our books on a regular basis. They have their ears close to the ground, which helps understand the end customers,” explains Sandeep Wirkhare, CEO, Essel Finance Business Loans.
IFMR Capital is thus taking the challenge of financial inclusion head on.
“It is our mission to reach out to Indians who find it difficult to get a housing loan or a business loan because they are not part of the formal system. Banks and financial institutions that have the capital do not understand these segments. Our job is to bring in capital to originators who provide finance to informal sectors,” says Kshama Fernandes, 47, managing director and CEO, IFMR Capital.
Over the last eight years, IFMR Capital has facilitated capital to the tune of around Rs 30,000 crore to 100-odd originators, serving 25 million end borrowers. IFMR Capital estimates that the size of the market it deals with is Rs 14 lakh crore.
The company started in 2008 focusing on the microfinance sector. Today, its originators span several asset classes like small business finance, vehicle finance, commodity finance and affordable housing finance.
Over the years, the company has pioneered many innovative structures like its flagship multi-originator securitisation (Mosec) as well as pooled bond issuances and has become a market leader in these areas. IFMR Capital’s Mosec structure offers institutional investors with different risk appetites a simple avenue to invest in originators.
The main source of income for IFMR Capital is the fees and interest it garners by connecting institutional investors and originators. For the year ended March 2016, IFMR Capital had revenues of Rs 246 crore and clocked a net profit of Rs 60 crore.
The People Behind It
In 2007, when Bindu Ananth quit her job—as the head of the new product development team within the Rural and Inclusive Banking Group at ICICI Bank—to build a startup in the field of financial inclusion, she had the support of Nachiket Mor, who was then heading the ICICI Foundation for Inclusive Growth.
Armed with a seed funding of Rs 150 crore—a long-term loan from ICICI Bank—Ananth set up IFMR Trust in 2007 as an affiliate of the Institute for Financial Management and Research (IFMR), Chennai. The idea was to collaborate on action-research; Mor was appointed the chairperson of the governing council of the IFMR Trust, which had its office in the campus of IFMR.