Olympus supports microfinance player's Asia roll-out

"At this point our investment is limited to $30 million, but this is a fast growing, capital intensive business when you are opening up new markets and so we believe there will be an opportunities to invest additional capital to support the management team's growth plans," said Daniel Mintz, managing director at Olympus.

Based on CreditAccess' past activity, this expansion may come through a combination of organic growth and acquisitions of existing businesses. The company set up independently in Indonesia and the Philippines - the two Southeast Asian markets in which it has gained traction - but operates in India through its investee Grameen Koota, which was seeded by the Grameen Trust in 1999.

Established in 2007, CreditAccess has a total portfolio of EUR240 million ($260 million) and more than 1.3 million clients. The company believes that expansion into one or two new jurisdictions could more than double its client base.

At present, most of these clients are based in India. As of November 2015, Grameen Koota had just over one million customers with INR16.7 billion ($249 million) and a network of 270 branches and 3,000 employees. With a strong focus on rural areas, it wants to provide services to more than two million poor and low income households by 2020.

"We looked at a number of MFIs in India before 2010 when the sector was relatively unregulated and growing too fast - we pulled back from investing then because we were concerned about the sustainability of that business model and excessive valuations. In fact, a lot of companies did get into trouble - they were charging too high rates and there were some real credit problems," Mintz said.

However, following the introduction of regulations by the Reserve Bank of India (RBI), business quality has improved and Olympus is more confident in the prospects for the industry. Last year, RBI also started issuing small finance bank licenses to several MFIs, which could open up a new range of services.

The World Bank estimates that over half of the global unbanked population - which stood at two billion in 2014 - resides in Asia. CreditAccess also works with the under-banked, entrepreneurs who have bank accounts but cannot get access to capital required to support their businesses due to a limited credit history or a lack of collateral. The company estimates it has an addressable market of more than 200 million creditworthy households in India and Southeast Asia.

While there is clearly a need for these kinds of financial services in numerous Southeast Asian markets - MFI has a much longer history in India - building a business is not straightforward. Companies require low-cost delivery systems to reach customers as well as a workable product and pricing model and credit and cash controls.

"These are small ticket loans so it's an employee-intensive business. If you are not making enough per loan to cover your overheads it doesn't work," Mintz added. "Every country has different regulations, a different credit culture, and its own ecosystem for validating information, so you have to pick your shots well. Growing by acquisition is in some ways easier, but on the other hand in the long run in some cases it's better to build from the ground up."

CreditAccess ultimately wants to pursue a public listing so it can raise more capital and extend its reach. However, this is not expected to happen for a couple of years.

 

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• Topics
• Expansion
• South Asia
• Southeast Asia
• Financials
• Olympus Capital Holdings Asia
• Financial Services
• India
• Southeast Asia
• Growth capital