PEs seek a harvest in rural India

Magma Fincorp, one of India's most successful non-banking financial companies (NBFCs), aims to fill that need. The company, with 235 branches located mainly in rural areas, provides financing for customers to buy farm equipment, construction equipment, and commercial vehicles, in addition to mortgages and business loans.

KKR, India Value Fund Advisors (IVFA), and LeapFrog Investments all have some experience with India's NBFC sector. Now the three investors have teamed up to commit INR5 billion ($80 million) to Magma.

"The current capital infusion is a reaffirmation of our belief in the longer-term growth prospects for Magma and our confidence in the team," says Ajay Candade, a principal at KKR, which invested $57 million in the company in 2011. "We are looking forward to building on our ongoing partnership, continuing working with management and helping them unlock more value in the firm at a pivotal time for the financial services sector in India."

Srikrishna Dwaram, a partner at IVFA, notes that Magma's services are oriented toward bringing currently-unserved populations into India's economy. That resonates with IVFA's other investments in microfinance and agri-commodity financing. "We felt that something like Magma would be a good fit in our portfolio of financial inclusion investments, because Magma is actually bringing mainstream financial products to the unbanked," he says.

LeapFrog had similar motivations, recognizing the firm's ability to bring established financial services from urban to rural areas. "The first tractor, first commercial vehicle, in many cases is financed by Magma," says Michael Fernades, a partner at LeapFrog. "And then beginning to bring people into the market, helping them build assets, providing them their first insurance product and over time strengthen their own financial position, I think was quite unique."

Magma's customers - who, in contrast to other NBFCs, are more as more like those of traditional banks, Dwaram claims - are one reason why the company is regarded by its investors as a useful economic barometer. The wide variety of services that Magma provides, and the size of its customer base - according to the World Bank, 68% of India's population lived in rural areas at the end of 2013 - mean that the company can collect a considerable amount of data about economic trends.

"Magma is interesting because it lets you track a bunch of structural themes to the Indian growth story," Candade says. "The bottoms-up feedback we receive through Magma has been a strong indicator of rural consumers and companies' demand and sentiment at large. This has helped us refine our investment thesis on a range of other sectors across the broader Indian economy."

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• Topics
• Expansion
• PIPEs
• South Asia
• Financials
• Financial Services
• Agriculture
• India
• KKR
• India Value Fund Advisors
• LeapFrog Investments
• PIPE
• Growth capital