Deal focus: Eight Roads bets on IFMR as a credit hub

Non-banking financial companies (NBFCs) are a hot ticket in India. Policymakers and investors alike are eager to back groups that offer financial services with greater geographical reach and efficiency than traditional banks. While these companies can be a boon for populations that have struggled to obtain credit, they often have difficulty obtaining financing themselves from lenders that may not understand what they do.

IFMR Capital is a potential solution to this problem, providing credit to NBFCs and helping increase their profile in the financial sector. Eight Roads Ventures India, which recently invested $25 million in IFMR, sees the company as the backbone that India's financial services sector needs in order to support growing but still vulnerable institutions.

"Our thesis was based on a combination of a macro play on the financial services sector along with the company's differentiated positioning, strong credit processes, high quality management team and track record of execution," says Kabir Narang, partner and managing director at Eight Roads.

IFMR aims to address a paradox in India's NBFC market: the institutions that are most useful in the economy - targeting highly specialized or new sectors - have the hardest time obtaining credit. While IFMR is also often unfamiliar with an NBFC's particular sector focus, it does have a deep knowledge base of the NBFC industry in general and with end borrower behavior across the country.

Eight Roads was impressed with the company's ability to maintain a high quality loan portfolio encompassing a range of sectors, along with its willingness to lend its own money rather than serving as a middleman like some other financial services companies. The GP sees IFMR as a way to obtain exposure to these promising economic areas for itself.

"Our investment in IFMR is a play on multiple fast-growing financial services sub-sectors including affordable housing finance, vehicle finance, microfinance and SME [small and medium-sized enterprise] finance, with a diversified risk profile across multiple companies," says Narang. "IFMR participates in the debt raising process as a knowledge partner and as a co-investor."

IFMR's reputation for sound investment decisions is also known among other market players, which means it is a useful barometer to judge the worthiness of a particular NBFC. While Eight Roads has made few investments in the financial services space so far, it expects more as it becomes better acquainted with the industry. The firm believes IFMR can offer more insights due to its dealings with other NBFCs and financial institutions and help it spot new trends and promising players.

"Financial services is a large, attractive and growing sector," says Narang. "We have been keen to invest in this segment and continue to evaluate opportunities in financial services and fintech."

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• Topics
• South Asia
• Financials
• Expansion
• India
• NBFCs
• Eight Roads
• Growth capital