CFPA Microfinance Management Co. Ltd., one of China’s largest microfinance players, is raising an equity investment of RMB160 million ($25 million) from the International Finance Corporation, which owns 19.2 per cent stake in the entity.
The private lending arm of the World Bank had earlier provided a $20 million loan to the MFI five years ago. The tenure of that loan is over. CFPA MF has an outstanding portfolio of RMB2.6 billion ($400 million), which represents a consolidated growth rate of over 46 per cent in the last five years.
The firm has about 306,000 customers, in 17 provinces of China. CFPA MF is operated by Beijing-based CFPA Foundation, which has a 62.7 per cent stake. While IFC holds 19.2 per cent, venture capital firm Sequoia Capital has 18.1 per cent interest in the firm.
CFPA Foundation was formed in 1989 as a poverty alleviation project. It is now the largest and most influential public welfare organization for poverty alleviation in China.
The funding will help CFPA MF to expand to more areas and counties of China, and expand its portfolio. About 97 per cent of CFPA MF’s customers are rural households, and over 90 per cent of recipients are women. Majority of them are not covered by traditional financial institutions, such as banks.
People living in remote areas of China have increasing need for loans to buy new machinery and materials to grow crops. Microfinance companies, which usually charge higher interest than banks, help meet that demand. There are more than 8,200 microcredit companies in the country.
CFPA recently entered into a partnership with Visa and China Foundation for Development of Financial Education (CFDFE) to extend micro-lending to Inner Mongolia.
Microfinance started late in China, compared with countries like India, but it grew rapidly. By 2012, the country had 6,000 microcredit providers, with just a quarter having been in operation for more than three years.
Alibaba Group Holdings Ltd, China’s e-commerce giant, is also involved in the sector and has extended loans to more than 230,000 micro-entrepreneurs through its AliFinance arm since 2011. Alibaba also operates Zhejiang Wangshang Bank, China’s first online-only bank with no physical branches, that provides loans to 800 million rural residents.
The sector has attracted investor interest in the region. In January, private equity firm Olympus Capital Asia invested about $30 million in CreditAcess Asia NV, a microfinance operator with a total portfolio of $258 million and operations in India, Indonesia and the Philippines.