ESAF Microfinance to become Small Finance Bank

ESAF Microfinance is an NBFC-MFIs (Microfinance Institution) in India (RBI Reg. No.: B-07-00652) based out of Kerala. ESAF was started in 1992 in Thrissur, Kerala. Today ESAF Microfinance has around 3,000 employees, has presence in 11 states in India and has 1.2 million clients with a book size of around Rs 2,500 crore. ESAF Microfinance is expected to start its Small Finance Bank operations in next 10-15 days.

Milestones

1992 – Established ESAF Society as an NGO
ESAF Microfinance is primarily backed by a Christian Evangelical group – ESAF was established in 1992 as a christian response to social and economic needs of people. As per the website, Evangelical Social Action Forum is a registered charitable society, born out of deep conviction that teaching and preaching should go hand in hand with social action. Launched in 1992 under the patronage of Kerala Evangelical Graduates Fellowship.

1995 – ESAF launched microcredit operations under Micro Enterprises Development Project with help from EFICOR, another Christian body called THE EVANGELICAL FELLOWSHIP OF INDIA COMMISSION ON RELIEF. EFICOR is a National Christian Organisation engaged in Development, Advocacy, Disaster Response and Training serving the poor, socially excluded and the marginalized in situations of poverty, injustice and disaster irrespective of caste, creed or ethnicity.

1998 – ESAF Microfinance received seed capital funding from Grameen Trust, Bangladesh, a part of the Nobel Prize-winning Grameen Bank, a Bangladesh-based MFI and community development bank.

2000 – An important round of funding by major financial institutions.

2009 – ESAF Microfinance received equity funding from Dia Vikas Capital (P) Ltd, a wholly owned subsidiary of Opportunity Internation, Australia.

2010 – Maanaveeya Holdings, a wholly owned subsidiary of Oiko Credit, Netherlands invested in ESAF Microfinance.

2012 – ESAF’s first securitisation transaction of Rs 32 crore happened in August, 2012 amounting.

2013 – In march 2013, ESAF Microfinance and Investments Private Limited concluded 5 securitisation transactions totaling Rs 102 crore and a total of 6 securitisation transactions of Rs 134 crore during FY 2012-13. Five commercial banks and one large NBFC invested in the pool.

For FY 2013-14, ESAF raises Rs 560 Cr from banks and through securitisation.

2014
In May 2014, Crisil upgraded the rating of ESAF to mfr2 on a scale of one to eight, where mfr represents grading of microfinance companies; mfr1 being the highest rating and mfr8, the lowest.

In August 2014, ESAF Microfinance and Investments Private Limited raised Rs 47.5 Cr through private placement of NCD’s issued to Triodos Fund, a social investment fund from Netherlands owned by Triodos Bank. The issuance was arranged by Unitus Capital and was fully subscribed.

ESAF Microfinance received NBFC-MFI license from Resrve Bank of India.

ESAF Microfinance to become Small Finance Bank

In Nov 2016, ESAF Microfinance received final approval from Reserve Bank of India to launch Small Finance Bank (SFB), and is likely to start operations by the first quarter of Jan 2017. ESAF holds the distinction that it will become the first bank after independence to be given a banking license in Kerala.

Esaf Microfinance and Investments Pvt. Ltd is planning to do a pilot launch for its small finance bank operations on 11 March in Kerala in five branches – customers will be able to use their banking services from 18 March after the full launch. The launch will happen in Phases – in Phase 1, Esaf Microfinance will have 15 branches and will inaugurate additional 70 branches in the next three months.

As per K. Paul Thomas, chairman and managing director of Esaf Microfinance: “We will offer higher than 4% on savings account and deposit too will be more than existing bank rates. On liability front we will target high income and large non-resident Indian (NRI) population in Kerala. Pensioners will also constitute to that large numbers as interest rate matters a lot to them… We are in the process to raise Rs600 crore though non-convertible debentures and commercial paper route before conversion.”

ESAF Future Plan

Over the next five years, the company plans to have around 500 branches (it now has 260, in 11 states). According to K. Paul Thomas, “By 2020, our vision is to have Rs 20,000-crore book size, with three million customers. To support all this, the company would require capital and we will start the process by the first quarter of 2017-18, to raise around Rs 300 crore.” He added that ESAF looking for a purely financial investor. In order to mobilise retail (small deposit) business, the company is planning to open 85 new branches before September 2017 – requiring an investment of around Rs 20 crore.

ESAF plans to allocate

  • 20% of its portfolio in MSME sector
  • 10% in housing and agriculture
  • 70% will be its traditional microfinance borrowers, at leasr for two years period.

ESAF hopes to raise Rs.600 crore though non-convertible debentures (NCDs) and to enroll three million customers by 2020.

Source

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A Few Last Words

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Subhodeep Mukhopadhyay

I am a Management Consultant in the Education Sector. In my previous corporate career, I have worked in Banking, Private Equity and Software industry. I am an MBA in Finance/ Computer Engineer and enjoy doing equity research and financial analysis in my free time.

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