[Funding alert] Five Star Finance raises $234 M from KKR-led consortium, valued at $1.4 B

One of India’s leading lenders to small businesses, Five Star Finance, has raised US$234 million (INR17 billion) from a consortium of leading global and Indian investment firms. 

The round was led by existing investors Sequoia Capital India, with participation from Norwest Venture Partners, as well as new investors, led by KKR with participation from TVS Capital Funds. The investment values the company at US$1.4 billion (INR103 billion).

Five Star plans to use the capital to expand its lending business to provide much-needed financing solutions to more of India’s small businesses, which comprise a large and growing segment of the country’s economy.

The investment will be made through a combination of primary infusion in the company and secondary shares sold by existing investor Morgan Stanley Private Equity. The company’s other existing investors - Matrix Partners and TPG Capital - continue to stay invested. 

Speaking on the investment round raised, D Lakshmipathy, Chairman and Managing Director of Five Star Finance, said, 

“In our mission of ‘Funding the unfunded,’ we have created a niche for ourselves empowering small businesses and the self-employed across corners of India by providing them with reliable and responsible funding alternatives. We aim to achieve this social goal through grassroot efforts without compromising on the pillars of asset quality and profitability that are needed to build a sustainable institution of scale.”

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“We are grateful to our existing investors - Sequoia Capital India and Norwest for further reposing their faith in us, and we are particularly excited to welcome our new investors – KKR through its Global Impact Fund, which shares our mission of financial inclusion – and TVS Capital, backed by one of the most respected business houses of South India. We are greatly thankful to Morgan Stanley Private Equity fund and specifically Arjun Saigal, for having been one of our earliest backers, and it is immensely satisfying to have been able to provide them with an excellent financial return,” he added.

The investment sees existing investors Sequoia Capital India and Norwest strengthen their commitment to the Company.

G V Ravishankar, Managing Director, Sequoia India, remarked,

“Sequoia Capital India is delighted to be investors in Five Star, and is strong believers in their business model that bridges the large credit gap that exists for small and micro-enterprises. The strength of the founder and the management team, along with the credit processes are visible in how the company has navigated several small and large disruptions including demonetisation, GST and now COVID-19 related challenges."

The firm is happy to strengthen its partnership with Five Star, as the company embarks on its next leg of growth - from being successful to becoming significant in the industry," he added.

Niren Shah, Managing Director, Norwest India, remarked, “We are delighted to be deepening our partnership with Five Star as they reach 10x of the scale compared to when we first invested. Five Star has executed exceptionally towards its goal of funding and empowering micro-business entrepreneurs across India in a scalable way. Five Star is well-loved by its customers and continues to have the finest asset quality together with strong growth and robust profitability.”

KKR’s investment is part of its Global Impact Strategy and marks KKR Global Impact Fund’s second investment in India and fifth in the Asia Pacific. The Global Impact Fund is focused on generating risk-adjusted returns by investing in companies that contribute to the United Nations Sustainable Development Goals (“SDGs”). Given its core mission to enhance and broaden financial access and inclusion, Five Star’s core business directly contributes toward SDG 1 (No Poverty), and SDG 9 (Industry, Innovation and Infrastructure).

Gaurav Trehan, Partner at KKR, said,

“KKR is extremely excited to invest in Five Star and advance its mission to provide crucial funding to unbanked and under-banked populations in India. The company is a true pioneer in the market having supported the growth of MSMEs for decades, playing an important role in India’s economy. Five Star is a terrific example of the type of solutions-oriented business that KKR looks to support through its Global Impact strategy and in India, and we look forward to working with the team to build on Five Star’s long-term success.”

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Gopal Srinivasan, Managing Director, TVS Capital, said, “Five Star has positioned itself as the best-in-class MSME lender in India's "missing middle" with supreme operational efficiency, appreciating the on-ground realities faced by self-employed own-account enterprises. In its continued pursuit of empowering next-generation entrepreneurs, TVS Capital is proud to partner with Shri Lakshmipathy, joining him in his vision of building Five Star into a pan-India preferred MSME lender through a continued focus on execution excellence and digital initiatives.”

Five Star has its presence in 262 branches spread across eight states of India in the Southern and Central part of the country. As of December 31, 2020, the company’s AUM stood at Rs 4,030 crore, and its GNPA stood at 1.29 percent.