CDC announces investment in leading Indian microfinance institution Ujjivan

CDC Group plc, the UK development finance institution (‘CDC’), has announced an investment of up to US$26m in Ujjivan Financial Services Private Ltd (‘Ujjivan’), a leading microfinance institution (MFI) in India. The investment forms part of an equity financing round of INR 6,000m including secondary transactions that will allow Ujjivan to provide more loans across a wider geographic area.

Ujjivan was established in 2005 with the aim of providing responsible access to formal credit to base-of-the-pyramid communities and it remains focused on these groups. To date, it has helped more than two million unbanked and under-banked customers in urban, semi-urban and rural areas, by helping fund micro-enterprises, home improvement, education and emergency spending.

With a network of 423 branches across the country in 24 states, Ujjivan is one of the few pan-India MFIs in India with its biggest presence in Karnataka, West Bengal, Maharashtra, Tamil Nadu and Uttar Pradesh followed by other states such as Haryana, Bihar Rajasthan & Gujarat & Jharkhand and expanding in states such as Tripura ,Meghalaya and Chhattisgarh.

India is one of the largest and most active microfinance markets in the world with total client outreach of 35 million people. While the sector has grown rapidly, it is yet to satisfactorily meet market demand, with the total unmet demand for microfinance estimated to be over US$60bn (Intellecap).

Historically, Ujjivan has focused on the group lending microfinance product for groups of women on low-incomes in urban areas. Typically, these people are daily or weekly wage earners such as vegetable vendors, maids, porters and construction workers whose annual wage is less than INR 120,000 (c US$1900). In recent years, it has also started to lend to individual micro-entrepreneurs to fund expenditure such as the purchase of equipment or livestock.

Commenting on the investment, Srini Nagarajan, CDC Regional Director for South Asia, said: “From a development perspective this presents a unique opportunity to work with one of the leading MFIs in India and enable them to deepen their reach and provide different products to their clients. Having been invested in Ujjivan through our funds business for several years, providing equity directly will take CDC’s relationship with Ujjivan to the next level and we look forward to working with the management team during this time of transformation in the financial inclusion sector in India.”

Samit Ghosh, MD & CEO, Ujjivan said, “This equity transaction is the largest in the sector and reaffirms Ujjivan’s inherent strength in terms of its excellent growth and profitability, balanced with our socially responsible mission and strong governance. In spite of increasing interest in the MFI sector there is still significant unmet demand and this funding round will enable Ujjivan to harness this opportunity for growth.”

Ujjivan was one of the first three MFIs to be awarded the SMART certification for client protection in India and its founder, Mr Samit Ghosh, is the president of Microfinance Institution Network (MFIN) in India, the sector’s self-regulatory organisation.

A portion of the company’s profits each year is allocated to initiatives in social welfare and development, infrastructure, and healthcare programs. Its 225 social development programs were implemented reaching over 346700 beneficiaries in 2014. Ujjivan also runs a financial literacy program to train customers to avoid financial distress by managing their cash flow, savings and borrowing based on their financial capacity. 82% of the 242,421 customers enrolled have graduated and 77382 have opened a bank account.