Deal focus: CreditAccess pursues multi-market scale in Asia

With 1,500 new hires expected every year, the key challenge facing CreditAccess Asia is managing growth. Microfinance is an employee-intensive business - staff oversee a large number of small-ticket loans, so if a microfinance institution (MFI) is not making enough per loan to cover its costs, the model no longer works. Put simply, scale is not achieved easily.

Unlike most MFIs in Asia, CreditAccess must also make the model work across multiple jurisdictions. Operating across several markets mitigates single-country risk and opens up a larger potential client base, but at the same time it requires a broader base of local experience and expertise.

"Every country has different regulations, a different credit culture, and their own ecosystem for validating information, so you have to pick your shots well," says Daniel Mintz, managing director at Olympus Capital Asia, which recently invested $30 million in CreditAccess. "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 started out in 2007 as an equity investor in India-based Grameen Koota. Five years later the company took control of the MFI and restructured as an operating company with integrated subsidiaries below it. Also in 2012, CreditAccess entered Indonesia as a greenfield operator and set up in the Philippines two years after that.

With just over one million customers, INR16.7 billion ($249 million) in assets, and a network of 270 branches as of November 2015, Grameen Koota accounts for the bulk of CreditAccess' business. However, the company thinks it can more than double its client base - currently 1.3 million - by entering new markets. There are plans to set up in Vietnam this year and possibly a fifth jurisdiction in 2017.

"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," Mintz adds.

Olympus looked at a number of MFIs in India before 2010 but pulled back from investing due to concerns about the sustainability of the business model and excessive valuations. The industry subsequently ran into trouble, prompting the Reserve Bank of India to introduce tighter regulations. As a result, Olympus is much more confident in the prospects for microfinance in the country.

CreditAccess works with the unbanked and the under-banked, typically entrepreneurs who have bank accounts but cannot get access to capital 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 Asia.

Reaching these customers is dependent on introducing low-cost delivery systems, ; workable product and pricing models, and credit and cash controls, ; and staff able to operate them. "Our well educated, professional and dedicated people are the key differentiators every day," a CreditAccess spokesperson says.

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