Editorial: Funding returns for profitable Indian microfinance players

Submitted by admin on Thu, 06/23/2011 - 10:42

Microfinance Focus, June 23, 2011: The troubled Indian microfinance sector is recently making headlines for a series of fundraising activities by some of its larger, profitable microfinance institutions.

Bangalore based NBFC-MFI Janalakhmi received an equity investment worth Rs 65 crores from Citi Venture Capital International on Wednesday. The deal marks as one of the largest equity investments since the Andhra Pradesh crisis hit the industry late last year.

Speaking at an ASSOCHAM conference in Bangalore, CEO of Kolkata based microfinance institution Bandhan announced a $35 million funding commitment from World Bank's financial arm IFC (International Finance Corporation).

Some other major players have taken the securitization route to ease their liquidity crunch. Earlier this month Avendus Capital made a debt investment worth Rs. 108 million (USD 2.4 million) by buying out 11, 304 microloans of Tamil Nadu based Grama Vidiyal Micro Finance.

Bangalore based NBFC-MFI, Ujjivan Financial Services also raised Rs 173 million through a securitisation transaction in May. The transaction was structured and arranged by Chennai based IFMR Capital.

Moreover, India’s largest, only listed and the most widely criticised microfinance institution, SKS securitized a loan worth Rs 50 crores comprising 65, 438 contracts with YES Bank. The portfolio is rated as PR1+ (SO) Highest Safety by rating agency CARE.

BlueOrchard Private Equity Fund, through its subsidiary in Mauritius, invested Rs 4.5 crores in the second round of equity funding of Svasti Microfinance Private Limited, Mumbai based Non Bank Financial Company.

“Our investment, during this turbulent phase of microfinance, further reinforces our belief in the long-term requirement of Indian microfinance sector”, said Aditya Bhandari, Private Equity Expert, Incofin Investment Management, on its investment of Rs 10 crore (US$ 2.3 million) in Kerala based microfinance institution Hope Microcredit Finance Ltd. (HMFL). The investment was made in December last year.

Further, Giving microfinance institutions a sigh of relief, lending banks approved restructuring of loans worth Rs 5240 crores of five microfinance institutions including Spandana, Share microfinance, Asmitha, Trident and Future Financial, earlier this month. In a press conference however, Reserve Bank of India’s K.C. Chakrabarty said, "On the ground level, still banks have not started lending, I am very frankly admitting,"

While profitable MFIs with diversified portfolios are showing signs of recovery, funding picture for smaller, concentrated microfinance institutions continues to remain bleak. Managing Director of Trident Microfinance, a small microfinance institution in Hyderabad reportedly said that "If the current funding situation continues for another three to four months, my survival will be a question mark".

Islamic micro finance and funding of MFIs

Submitted by g k agrawal (not verified) on Tue, 06/28/2011 - 22:36.

Islamic Micro Finance may not be a suitable option or alternative fot India to improve reach of formal finance to the under reached/unreached poor especially in rural areas in as much as Islamic banking is yet not approved under the Banking Regulation Act, 1949 and resource mobilisation from the formal banking system is not a problem except recent turmoil of AP resulting in lack of trust and confidence building between MFIs and banks.
As regards equity funding of MFIs by Equity Cos., this basically changes the character of MFIs as member driven and these become owner driven MFIs thereby losing sight of interests of the poor and developing greed for higher earnings even at the cost of poor to make investments in their equity an attractive business proposition..