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Monica Brand, Robert Annibale, and Royston Braganza will sum up the main points that have been discussed in the conference over the past 1 and half days. Monica: I believe that microfinance is in some senses is constrained by certain factors. As equity investors we invest in people, and we look for social passion and the passion to succeed. There is a lot more to do here in India, and I come away with a measured optimism about this perfect . . . → Read More: Key Takeaways from MCCM Vineet Rai: Is there potential for more SKS to emerge from the current pool of MFIs? Shubhankar: The key is finding innovations. Agricultural loans don’t gel very well, so we have to figure out the methodology for that. We need to be much more broad-minded about how we define microfinance, the target segments we are talking about. We will probably have a couple of SKS coming up, and there is more than enough space for them. Richard: There is a . . . → Read More: Day 2 Closing Conversation: Examining the Deal Pipeline to Bejul: There are 233 MFIs and not all will be sustainable. The challenge is that we don’t all know how to do microfinance. So is there any opportunity for consolidation? Bejul: Conventional economics points out that a fragmented industry will eventually to consolidation, but I have not seen that in any sector in India. We have highly fragmented industries. One of the reasons is that Indian entrepreneurs are unique because they may be short on capital, but they will . . . → Read More: Day 2 Closing Conversation: Examining the Deal Pipeline Shubhankar: I don’t see it is imperative being good or that there is any conflict between being good and greedy. It all depends on the promoter. At Arohan we always try to be good and we have been recognized by clients. Customer satisfaction is what is most important. It is about how flexible we are as institution and how fair we are to our clients. Benchmarks of the industry has changed, the level of growth has grown exponentially. Richard: we . . . → Read More: Day 2 Closing Conversation: Examining the Deal Pipeline Do you think there is still opportunity for small MFIs to get investments? Bejul Somaia of Lightspeed Advisory Services: We are a mainstream investor so our main role is to identify business that can crack into the top tier. We still believe there is opportunity to invest in small MFIs that have the potential. The main question for us is what will take for that to happen? It is about differentiation in 4 areas: 1. customer & value proposition. 2. . . . → Read More: Day 2 Closing Conversation: Examining the Deal Pipeline The closing conversation of the conference examines the deal pipelines, regarding the parties involved in investing, participating and constructing the future of microfinance. It is moderated by Vineet Rai, the CEO of Aavishkaar. Vineet clarified that the pipeline is a justification of investment in the microfinance industry. Manny people want in to this pipelines. There is a lot of value in this pipeline, depending on what stakeholder or perspective that you come from. This panel will discuss the opportunities that . . . → Read More: Day 2 Closing Conversation: Examining the Deal Pipeline Question: Nobody is talking about what’s the risk appetite. What is the risk appetite that investors are comfortable with? Vishal: 2.5-3% is a comfortable range, and MFIs are 2 or 3 times of that, while some are below that also. Generally as long as you are able to meet that average is good enough. Questions from the ground: What will happen to all of us in 10, 20 years? What are the career prospects in this industry? Sanjay Sinha: I believe that banks will eventually figure out how tot use the correspondents model, and all of you will eventually become business correspondents. Kshama: The impact will be upon the children of the microfinance clients, who are able to get more and better education, which is a tool that will can help them to . . . → Read More: Panel 5 – Exploring the Risks Q&A Erik Guerts is a senior management officer in Triple Jump, an Amsterdam-based investment company. He will highlight his experiences of risks in other markets, and compare it with those of the microfinance sector. It makes a difference viewing risks from the perspective of debts or equities. Growth is the main value drive for microfinance, from an equity perspective, but its is a big operational risk if you are making a loan. In his years on the job, he has . . . → Read More: Panel 5 – Exploring the Risks Opening Statements Vishal Mehta is the co-founder and MD of Lok Capital. He gave a perspective of what investors look at and the risks that are of primary concern. 2 categories of regulatory risks: political and framework. Framework that is available to the industry for achieving financial inclusion. The lack of innovation is also a big risk to investors. The industry has gotten too comfortable with its products and procedures. What will help a sustainable relationship with client is HR and IT, . . . → Read More: Panel 5 – Exploring the Risks Opening Statements Sanjay Sinha, MD of M-CRIL, has, prior to this conference, been expressing some of the concerns regarding the risks in this sector. He claims to be a professional whistle-blower, and enjoys promoting good practice. It’s not all about mathematical models in ratings, but it’s based on research on the community, with the MFI, etc. If we forget the problems on the ground, too many clever things start to happen, and it could replicate the tech boom of the late ’90s. . . . → Read More: Panel 5 – Exploring the Risks Opening Statements Rajender Sehgal of HDFC Bank candidly agreed with Kshama that assessing risks is one of the most disliked jobs in the industry. How do banks look at the microfinance sector vis-a-vis the other sectors. Banks can look at it with a business vertical, or like any other vertical, or a stepping stone to another goal. In HDFC, it is run as a business vertical with long-term plans, and so they are favoured by more than 100 MFIs who bank with . . . → Read More: Panel 5 – Exploring the Risks Opening Statements The opening panel of day 2 is moderated by Kshama Fernandes, the Chief Risk Officer of IFMR Capital. She gave a recap of yesterday’s discussion. From a risk officer’s perspective, she revealed the difficulties that they face in their jobs, such as having to justify their jobs when things are going well, which is precisely the situation that they are there to ensure. Risk is an important issue to consider in the industry today. Setting the tone for the panel, . . . → Read More: Panel 5 – Exploring the Risks Opening Statements Q: How do you perceive growth of increasing participation of NCDs by mutual funds houses? Key parameters for growing MFIs? Balasubramaniam: Most MFIs think about refinancing, thought not all. It is useful for building up assets. It can also ensure NCDs. Because of the quality of the borrowers, the cost of financing is high, and its ability to raise long-term money at a cheaper rate will not be there. But clearly is the institution is highly-rated, investors will come. But . . . → Read More: Day 2 Opening Discussion Q&A Is it possible for mutual fund industry to fund microfinance industry? Balasubramaniam: Yes, it is possible. There are securitized and unsecuritized channels (like NCDs). The moment it is securitized we need a pool of assets. Unlike a bank, there is no guarantee of loans in the mutual funds industry. There are certain criteria that an MFI has to meet before we can give out loans to them. We will not lend, for example, to MFIs recording a profit of more . . . → Read More: Day 2 Opening Discussion Q&A A. Balasubramaniam, the CEO of Birla Sun Life Mutual Fund, opened the second day’s discussion with a foray into how the mutual fund industry can play a role in the microfinance industry. From issuer’s perspective, the issuance can have a put option. It is an opportunity, and we see a pool of investors coming from rural markets, where the income stream is relatively predictable because they work in a community. Even the government is giving support tio agriculture as their . . . → Read More: Day 2 Opening Discussion
MCCM Panel 1 (from left to right): Aditya Bhandari, Sandeep Farias, Ravi Kapoor, Avnish Bajaj, James Kaddaras.
MCCM Panel 2 (from left to right): S. Viswanatha Prasad, Alok Mittal, Royston Braganza, Padmaja Reddy, Christian Banno.
MCCM Panel 4 (from left to right): Vikram Gopalakrishnan, Jaydeep Chakraborty, Jean-Pierre Klumpp, Kaushik Modak, Ajit Jain
Day 1 Closing Conversation (from left to right): . . . → Read More: Angles…Panel Question: Where is the contrarian player in the valuation question? Mohit: The secret has to lie in the body of the company, the quality of management, and the staying power of the key people. To be good in our business we need to look at the insides of the company to see if it has the ability to maneuver around crisis and reap in profits in due time. Ashish: We have been carried away by the topic of valuations . . . → Read More: Day 1 Closing Conversation Paul Beckett: where does India fit? Monica: India plays prominently because it is a prominent market and there have been experimentations on technology and the likes. But the bubble experienced here is very much like the dot-com bubble of the 90′s, and she doubts that the high PE ratios are truly justifiable. Ashish: It’s not just valuations, but also a whole dimension of corporate governance that has so far been neglected. Ashish Lakhanpal of Kismet Capital stated that there is only one winner of these conference, which is access to capital. One thing that doesn’t get enough press is that if you do pay attention to the benefits that result, the fundamental access to capital is being democratized. There is also the creation of a platform for credit access. Sometimes journalists sensationalize exploitation, but neglect that the beneficiaries of microfinance have been positively and undeniably impacted by microfinance, and this doesn’t . . . → Read More: Day 1 Closing Conversation Mohit Bhatnagar of Sequoia India shared 5 points. 1. The early and easy days of simple acquisition are gone. The sooner we realize it the better we will be. The current landscape will require processes that will separate the men from the boys 2. Hardcore analytics and segmentation – one size does not fit all. The base is not homogeneous, and the products have to be sophisticated. 3. Sheer organizational majority. No longer can we manage an MFI on . . . → Read More: Day 1 Closing Conversation Monica Brand from ACCION presents her case from the perspective of a fund manager. She agrees with Paul that the industry needs to be transparent about the full picture, and that they have not yet considered the press as a significant facilitator of the industry’s image. Some of the negative press that has been received does demonstrate the limitations of the model, but only a small part of it. Other than that there are many small MFIs that are innovating . . . → Read More: Day 1 Closing Conversation The concluding panel of the day is moderated by Paul Beckett, South Asia Bureau Chief of Wall Street Journal South Asia. From the perspective of the press, some crucial aspects of microfinance as it progresses, microfinance has become an industry that has been populated with people preoccupied with the global financial crisis. As it becomes a mainstream business, it attracts the attention of the mainstream press, and they are going to have to manage all of that. This matters because . . . → Read More: Day 1 Closing Conversation Question from the ground: All these structure are for your regular products, but are there any debt sources or structures that exist to promote or debt-finance other loans that are related to say agriculture? Kaushik Modak: We do a lot of farmer financing globally. In India the financial structures to finance a retail customer is not available to me. Access to my global treasury is bound under guidelines. We have successful programmes in other countries but we are unable to . . . → Read More: Panel 4 – Focus on Debt: Future Structures, Future Players Q&A Question from the ground From a practitioner’s point of view, it qppears that equity is not a problem, but debt is a great problem. Only 20-30% banks will take part in microfinance. and even among these, we need to approach them repeatedly to et the funds that we need. Can you suggest other tricks of the trade to get responsible bankers who will listen to the needs of MFIs? The differences between having and wanting 2 funds is that you . . . → Read More: Panel 4 – Focus on Debt: Future Structures, Future Players Q&A Jaydeep Chakraborty of Arohan Financial Services Ltd spoke from the perspective of an MFI. MFIs do want to get involved in the shaping of debt structures. In doing so, they can diversify their funding sources, an important lesson that we have learnt from two years ago. For Arohan, it jolted them to realize that they cannot solely rely on private investor funding, as they were doing. One of the challenges that an MFI face is understanding all the transactions, such . . . → Read More: Panel 4 – Focus on Debt: Future Structures, Future Players Ajit Jain introduced Deutsche Bank’s work in microfinance, which involves lending senior debts to MFIS in various parts of the world. Microfinance is a double bottomline industry. It has evolved a lot globally, and we should continue to learn from other industries, and adopt their best practices. While there are many private investors who are willing to invest, we are not yet at the level where whole institutions will fully invest. The industry will evolve to a point where there . . . → Read More: Panel 4 – Focus on Debt: Future Structures, Future Players Jean-Pierre Kumpp: No country is immune from global shocks. As an industry we have done a lot better than other industries, but the point if nothat we are better, but whether we are practising financial inclusion. Vikram Gopolakrishnan noted that no one at the conference had yet to mention the linking of the microfinance industry with the private sector, a partnership which he feels has great untapped potential. Investors recognize that besides a commercial, there is an emotional motivation. They . . . → Read More: Panel 4 – Focus on Debt: Future Structures, Future Players Panel 4 follows up on Panel 3 to assess the impact of various structures, and also explore the possible range of buyers, both institutional and private. Jean-Pierre Klumpp moderates this panel. He questions, as we have also done on the international side, can we bridge the funding needs of the microfinance sector with the capital market? Kaushik Modak of Rabo Bank comments microfinance is at a stage where NBFCs were in the 1990′s. The pain that we experience in the . . . → Read More: Panel 4 – Focus on Debt: Future Structures, Future Players The soaring microfinance industry has been luring private equity investors with its rapid growth and high returns. Growing at a CAGR (Compound Annual Growth Rate) of 105%in the last five years it has emerged as an investment hotspot for private equity investors. In the last 18 months, close to US$ 200 million in PE was invested in Indian MFIs and millions more are in the offing. While the interest in microfinance equity investments is high, the market is still very . . . → Read More: Private Equity: Fishing in Microfinance Water |
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