Fincare (AU Bank)

Building a leader in inclusive finance for India

Industry:

Financial Services

Region:

South Asia

Website:

fincare.com

17 0 M

Emerging Consumers Reached

$ 1.2 0 B

Loans Disbursed

₹ 143.2 0 B

Assets Under Management

Fincare is an inclusive lender providing loans and banking services to previously unbanked women in rural India. LeapFrog has supported Fincare in its evolution from a microfinance institution into a high growth, technology-enabled inclusive bank with broad product offerings. In April 2024, it merged with AU Small Finance Bank to form India’s largest inclusive bank.

LeapFrog invested in Fincare in 2017, its first banking investment in India. Fincare was one of only ten to be granted a small bank licence by the Indian Government.

At the time, India had about 190 million adults without access to formal financial services, making financial inclusion a critical objective.¹ Fincare’s commitment to financial inclusion aligned with LeapFrog’s impact-driven investment philosophy. The bank’s mandate required at least 50% of its loan portfolio to be loans and advances under INR 2,500,000 (~$30,000), ensuring a focus on inclusive lending. A typical Fincare customer is a rural woman seeking joint-liability group (microfinance) loans to support her micro-enterprise, generate income and increase her household’s quality of life.

1 The Global Findex Database, 2017

Through its profit-with-purpose approach, LeapFrog has supported Fincare’s commercial growth while expanding access to quality, affordable financial services for underserved women.

Performance against Investment Thesis

Fincare’s AUM has grown by 7x – from INR 20.5 billion to INR 143.2 billion ($94 million – $1.6 billion). The company’s average ROE since initial investment was 13%, despite stress from India’s demonetisation and the COVID-19 pandemic and was 21% at the time of the merger. Fincare is now among the top two small finance banks in India in terms of digital capabilities covering the customer journey as well as internal processes.

Performance against Impact Thesis

Increased Access: Emerging consumers reached by Fincare’s services has grown 3.8x from 4.5 million to 17.2 million. The number of banking outlets, a key financial inclusion access indicator, has grown from <300 to 1,292 outlets across 23 states and union territories in India.
Deepening Financial Inclusion: In FY23, more than 40% of Fincare’s credit customers were new to credit, helped by the bank’s digital KYC and inclusive lending products. 100% of microfinance borrowers are women.
Enabling Savings for Underserved: Microloan savings account customers grew to 2.72 million in 2023, from 0 in 2017. Recurring deposit accounts of microloan customers also grew significantly, rising from 169,040 accounts in 2021 to more than 1 million accounts in 2023.
Enabling MSMEs and Job Creation: Fincare’s full-time employees grew 2.6x to 14,800+ since investment. Loans to micro-entrepreneurs grew from from less than 10,000 to more than 30,000 customers.

Leading and Designing Structured Rounds

LeapFrog’s first investment in the company in 2017 was during India’s demonetisation, followed by a round during the COVID-19 pandemic. In both these cases, the investment was structured with robust downside protection in a way that delivered growth capital to the company while meeting the needs and requirements of LeapFrog managed funds.

Bank Transformation

Post-investment, Fincare undertook a major transformation to expand its product suite from solely microfinance to be a full-service inclusive bank. LeapFrog provided guidance for wide-ranging transformation, across digital technology, compliance and talent. The result saw Fincare add offerings such as loans against gold and credit for microenterprise or affordable housing. Fincare also built its savings accounts and fixed deposits segments, and started offering insurance.

Digital Strategy

LeapFrog supported management to implement digital strategies that have enhanced customer experience, cost efficiencies, and customer stickiness. Innovations include mCare, an instant approval product powered by electronic KYC and algorithm-based credit underwriting and mServe, a collections app to improve customer experience. LeapFrog helped Fincare to develop and launch its digital savings account Fincare 101.

Measuring Social Impact

LeapFrog funded and led Fincare’s inclusion in 60 Decibel’s inaugural Microfinance Index, the world’s first financial inclusion social performance report focused on the customer perspective. This enabled Fincare to understand and benchmark its social performance indicators with regional and global microfinance peers.

Compliance and Governance

As one of the first global institutional investors in Fincare, LeapFrog helped strengthen Fincare’s governance practices. This included Fincare’s successful technology-led compliance upgrade required by the RBI, which helped the company secure regulatory approvals during LeapFrog’s exit. The team also collaborated with the bank to assess Scope 1, 2, and 3 (Selected) GHG emissions, enhancing their environmental reputation.

“Our customers stand to gain from the merger [with AU Bank], with an expanded presence and a full suite of products that cater to their specific requirements. This merger is a defining milestone in our journey towards building a world-class bank with a robust balance sheet and a truly national franchise.”

— Rajeev Yadav, CEO, Fincare Small Finance Bank