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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 Question from the ground: I was surprised to hear that you are taking away subjectivity from the ratings. I wouldn’t want to make a rating based on financial information alone, because that was what led to the downfall and collapse of the global economy. What is the problem with having a microfinance sector-specific rating that keeps in mind the differential aspects of microfinance? Meenal: Every other asset class has the exact same rating. For the microfinance sector to have a . . . → Read More: MCCM Panel 3 – Focus on Debt: Alternative Financing Structures, Q&A Question from the ground: Do you think the recent draft guidelines for securitization will jeopardize the industry? Meenal: It is precisely what it is – a ‘draft’ guideline. The microfinance sector is so small that its concerns were not taken into account. One of the recommendations that IFMR Capital has put out is instead of having a 9-month holding period, we have instead 9 installment periods. But that remains to be seen as to what the final guidelines will be. Shams Zaman of Citi Bangladesh referred to Citi’s investments in MFIs in Bangladesh. The most prominent is BRAC, whose securitization is the world’s first AAA Rated micro-credit securitization. BRAC, which has 6.2 million borrowers, has a very detailed and extensive credit policy. From the perspective of Citi, BRAC had a very impressive customer-driven operation that CIti felt was investment-worthy. BURO is a 2nd tier MFI that is the first syndicated facility for the agricultural industry in Bangladesh Gouri Sankar runs the Microfinance team of Standard Chartered Bank.He praised the thriving Indian microfinance sector, which is evidence that microfinance banks are achieving their goals. In India Standard Chartered works with 18 MFIs with a portfolio of $110 million. The bank has contributed to the Indian microfinance scene by conducting workshops on corporate governance and being involved in MCCM 2008, among others. The founding of NCD leads to one more funding route for the maturing sector. It also means . . . → Read More: MCCM Panel 3 – Focus on Debt: Alternative Financing Structures, Opening Statements Meenal Madhukar introduced what IFMR Capital does. It is a young company, less than two years old with a focus on product and market development. This requires understanding both investor and MFI well. Its emphasis is on investing in small MFIs that are out to impact low-income households with good business plans but little capital. It stresses on transparency and discipline, which are traits that will help to draw investors. IFMR’s underwriting guidelines is a cornerstone of its efforts . . . → Read More: MCCM Panel 3 – Focus on Debt: Alternative Financing Structures, Opening Statements The moderator of Panel 3 was Eric Savage, the Co-founder and President of Unitus Capital. The discussion will revolve on where money will come for the microfinance sector in the near future, and the rise of alternative deb structures. How can we draw more capital, and how can we do it in an innovative way to drive better terms and conditions? Diversification is critical for any business, a point particularly evidenced in the financial collapse two years ago. The microfinance . . . → Read More: MCCM Panel 3 – Focus on Debt: Alternative Financing Structures, Opening Statements Question from the ground (to Prasad and Royston): In view of the deals you have been involved in, have investors lost any money at all? Are MFIs being undervalued? Prasad: Thankfully yes, but thankfully also we haven’t lost a lot. Transaction takes place at a fair price, where the MFI take investment from an investor they like. It’s a win-win situation for both MFI and investor. Royston concluded the panel by maintaining that there is no right valuation and no . . . → Read More: MCCM Panel 2 – Focus on Equity: The Valuation Question Christian Banno commented that investors don’t really work according to benchmarks. What they value is whether MFIs can efficiently provide credit to their clients, because it is their social job. Question from the ground: The valuation is largely defined by RoE and Roas. Key here is assets. innovate in technology and products. What is the perspective of investors where MFIs want to innovate, but investors want it to add to the RoE and RoA? Do you look at new products . . . → Read More: MCCM Panel 2 – Focus on Equity: The Valuation Question Royston to Padmaja: The notion is that there is a vicious cycle about whose fault is it. investors are pushing MFIs to grow at breakneck speed in pursuit of big and fast profits. Where there are investments, there is advantage. It is an indicator of its performance and efficiency. As a microfinance organization, if you are not commercially-minded, you will be thrown out of the competition. Commercial-minded organizations tend to understand their customers better, because they have an objective . . . → Read More: MCCM Panel 2 – Focus on Equity: The Valuation Question Royston to Prasad: Where do you see the average valuation settling down? Prasad replied that it is difficult to define valuations according to multiples of their book value. However we should not soend too much time on where the average valuation is settling down. There is a lot of complexity in transactions. The problem with valuations of MFIs is the multiples. But another dimension is Indian ownership. Some of these smaller MFIs are valued higher because of foreign investors, who . . . → Read More: MCCM Panel 2 – Focus on Equity: The Valuation Question S. Viswanatha Prasad of Caspian Advisors was the first of the panelists to speak. He expressed that his initial thoughts on valuations is that it is a concern. Do investors really know what they are getting into? Are the customers getting what he/she wants? The problem is that there is not yet a business case for investing substantially in microfinance. Far-sighted investors know that value will dip in single-product MFIs, as such a narrow channel of serving their clients is . . . → Read More: MCCM Panel 2 – Focus on Equity: The Valuation Question, Opening Statements by Panelists Royston Braganza moderates the second panel of the day, which discusses the valuations of Indian MFIs. Royston first lauded the big names that consist the panels of this conference. Next, he introduced his co-panelists, Padmaja Reddy, Alok Mittal, S, Viswanatha Prasad, and Christian Banno. Royston kicked it off by titling his short speech on valuation “A Cup of Joy or a Cup of Woe?” He candidly referred to the World Cup craze, using it as an allusion to the topic . . . → Read More: MCCM Panel 2 – Focus on Equity: The Valuation Question Question from the ground: What is the reference point that an investor seeks when they invest in the equity market, particularly the microfinance sector? Ravi Kapoor commented that retail investors will participate only in companies go public. That will take some time as the sector is still maturing. He closed the first panel of the conference by saying that the microfinance sector is differential. It is based on a different business model and should not be compared to traditional banking. . . . → Read More: MCCM Panel 1 – Focus on Equity: Recent Deals, Comments Why is the demand for equity so high? Avnish Bajaj: Profits of companies such as SKS have grown multi-fold, and everyone wants a piece of it. It arose out of unlimited demand. He did not think that the valuations are justified, and what needs to be justified is the fundamentals. Risks are often not considered in the valuations. In a typical company, ROA is expected to be 3-7%, provided there is a 1% loss and 30% interest rate. It involves . . . → Read More: MCCM Panel 1 – Focus on Equity: Recent Deals, Q&A Question from the ground: What is the entrance and exit strategy of investors? Sandeep Farias pointed out that a question that MFIs seldom ask prospective investors is: which year of their investing cycle are they in? It is an important question that will have great implications on the MFI’s future. With regards to the exit strategy, it is perhaps somethings that remains a question. Robert Annibale was requested by Ravi Kapoor to respond to this question as well. Robert expressed . . . → Read More: MCCM Panel 1 – Focus on Equity: Recent Deals, Q&A Ravi Kapoor started off the participants’ Q&A session by summing up the main points of the panelists’ speeches. Is capital available? What are the challenges of attracting capital? What are the strings attached with capital? Why isn’t Indian capital coming into the market if there is a big opportunity to create value? Avnish Bajaj said that capital is available, but many investors think that it is sub-prime, so they will not go into it. the second challenge is that very . . . → Read More: MCCM Panel 1 – Focus on Equity: Recent Deals, Q&A Microfinance Focus , June 23, 2010 ( New Delhi) : ‘Microfinance Cracking the Capital Markets, South Asia 2010’, The conference on Microfinance Investments kicked start today at the Taj Mahal Hotel, New Delhi, India. Gathering over 300 industry experts, investors and microfinance institutions the two day conference begins with the theme of exploring the opportunities and the risks of Capital Market investments in South Asian Microfinance. The backdrop to the conference is the unprecedented surge in the commercial capital investments . . . → Read More: Exploring Investment Opportunities and Risks in Microfinance: ‘MCCM’ 2010 Begins |
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