Centrum Capital to acquire FirstRand Bank’s microfinance business in India

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Mumbai: Centrum Microcredit Pvt. Ltd, a subsidiary of Centrum Capital Ltd, on Wednesday said it has received a licence from the Reserve Bank of India (RBI) to start microfinance business.

As part of starting up, Centrum Capital has executed a definitive agreement to acquire the Indian microfinance business of South Africa-based FirstRand Bank, which currently has around 70,000 customers in the Maharashtra region and employs over 300 people. This is the second lending business the firm has recently entered, following its entry into affordable housing finance at the end of last year.

“We seeded this business through an acquisition because to build a team for microfinance, it takes a few years and it’s not like a bigger business where you can hire from existing players and bring people in. This acquisition is largely made to bring in the team and now, we will leverage on the team,” said Jaspal Bindra, executive chairman of Centrum Group. Centrum plans to grow the microfinance business and expand to other states by infusing additional capital and also by acquiring loan portfolios of other micro lenders.

“We will definitely bolster this with more growth and if we find the right target, we are open to inorganic growth as well,” said Bindra.

Centrum Microcredit will focus on providing loans to unserved and underserved borrowers operating small businesses in semi-urban areas.

Bindra said Centrum sees strong cross-selling opportunities for the group in its microfinance clientele.

“It is a segment that we feel is quite important as it is large and profitable. There is also the opportunity of people moving up the value chain and you can follow them through the rest of the chain. Especially in the urban space, it is a strong possibility that some of these people will graduate and you can cross-sell other products to them like affordable housing and insurance, over time,” said Bindra.

Centrum’s focus will continue to remain on retail lending. It is currently exploring an opportunity in the small and medium enterprise (SME) space that will be more skewed towards the digital model.

“We are only going to look at SME and downwards, i.e. only retail. Today, we have no plans to do wholesale banking. We have a chain from SME down to MFI and in between, we have affordable housing. But there is one big section which is vacant within SME, which is Rs1-2 crore ticket size MSME space. That is a space we are exploring,” said Bindra.

According to Bindra, Centrum Group expects to have a book close to Rs1,000 crore across affordable housing, microfinance and SME by March 2018.

The Indian microfinance space has seen several acquisitions in the recent past.

In October, the board of IndusInd Bank Ltd approved a merger between the bank and microfinance firm Bharat Financial Inclusion Ltd (BFIL). The transaction is subject to various regulatory approvals.

Last year, in October, Kotak Mahindra Bank Ltd acquired microfinance firm BSS Microfinance Pvt. Ltd for Rs139.2 crore, while in July, IDFC Bank Ltd had acquired Tamil Nadu-based microfinance institution Grama Vidiyal for an undisclosed amount.

On Wednesday, Centrum Capital shares gained 4.95% on the BSE to close at Rs80.50, while the benchmark Sensex gained 1.17%, or 387.14, to close at 33,600.27 points.