TPG leads $100 M equity investment in SME lender Five Star Business Finance

Global alternative asset firm TPG, which has $84 billion of assets under management (AUM), announced it has signed a definitive agreement to invest $100 million in equity in Five Star Business Finance Limited (Five Star), a fast-growing, fully-secured small business financing company focused on South India.

Existing investors Norwest Venture Partners, an investment fund managed by Morgan Stanley, and Sequoia Capital are investing alongside TPG Capital Asia. Matrix Partners, the company’s first investor, continues to stay invested in the company.

Five Star Finance Business, founded in 1984, is a non-bank finance company providing loans to nearly 40,000 customers. The company, with a presence in six states in India, focuses on lending to the under-banked population, which typically lacks the financial records necessary to participate in the organised financial sector.

Five Star’s customers include small business owners such as single-shop retailers like vegetable vendors, provision stores, food retailers and self-employed individuals. The company maintains a healthy asset quality, managing approximately Rs 1,220 crore in assets across 150 branches as of June 30, 2018. Its overall employee base stands at 1,450.

In a statement, D Lakshmipathy, Chairman and Managing Director, Five Star, said, “Our 30 years of experience as a hands-on partner to our customers has led us to establish a business model that directly addresses the needs and risks unique to their businesses.”

He added that in TPG, Five Star found a partner that is fundamentally aligned with its mission to empower India’s under-banked segment. “The firm has a long track record of partnering with financial services companies like us that are providing risk-focused, market-specific tools to help businesses grow. TPG is a great addition to our strong roster of investment partners,” Lakshmipathy said.

On the investment, Gaurav Trehan, Partner at TPG Capital Asia, stated, “Five Star is bridging the funding gap for small business owners, providing them with tailored, risk-conscious financial solutions. We are impressed by the company’s differentiated business model and skilled team, and are pleased to partner with them in their next stage of growth.”

The financial services sector is a key focus area for TPG in India, and Asia more broadly. For more than 15 years, the firm has been partnering with companies across the region, including BFI Finance, BTPN, Jana Small Finance Bank, Shenzen Development Bank, Shriram City Union Finance, Shriram Transport Finance, and Union Bank of Colombo.

“For many years, small enterprises across India have struggled to gain access to traditional financial systems due to their inability to meet formal requirements for credit. In South India and across the country, demand for funding continues to significantly outpace supply,” said Puneet Bhatia, Managing Partner at TPG Capital Asia.