The International Finance Corporation (IFC), the investment arm of the World Bank, has agreed to invest $35 million for an undisclosed stake in microfinance company, Bandhan Financial Services, according to a statement on the IFC website.
Kolkata-headquartered Bandhan currently operates through 1553 branches in 18 Indian states, including the northern and eastern parts of the country. It focuses primarily on providing microloans to women in rural and urban areas. Bandhan currently has about 3 million borrowers and a $520 million loan portfolio.
The statement noted that Bandhan is seeking funding to “increase its outreach in the states where it operates as well as expand its operations in other states.”
Other investors in the company include the Small Industries Development Bank of India with a 10.81 percent stake, the Financial Inclusion Trust, the North East Financial Inclusion Trust and the Bandhan Employees Welfare Trust, which together hold an about 87 percent stake.
The investment comes on the heels of controversy arising from a spate of suicides connected to India’s microfinance industry.
More than 75 people, mostly centred around the Indian state of Andhra Pradesh, have taken their own lives over the past few months after defaulting on micro-loans.
Critics attribute the deaths to unscrupulous lenders and aggressive recovery practices, while noting that the current state of microfinance in India mirrors the US’s own credit meltdown in 2008, when lenders peddled easy loans to homebuyers until the markets crashed and borrowers were unable to pay off debt.
Recently, former Sequoia Growth Capital investee SKS Microfinance, which raised $358 million last August in an IPO, saw its shares plummet following the passage of a bill to rein in errant microfinance companies in the state of Andhra Pradesh. Part of the bill extends collection times for MFI’s from a weekly to monthly basis.