Microfinance will continue to have Priority Sector Lending Status-Matrix

Microfinance Focus, July, 30, 2010: Matrix Financial Consultants, is a Mumbai based investment banking firm offering debt syndication, equity placement and financial restructuring to an array of clients from industries such as microfinance, power, hotels and pharmaceuticals.

Gautam Doshi, Founder & CEO, Matrix Financial Consultants

It recently raised INR 10 crore of long term debt for Future Financial Services Ltd (FFSL) from a leading Mumbai based NBFC. It also concluded two debt syndication transactions worth a total of INR 75 crores for SHARE Microfin from Andhra Bank and State Bank of Indore in April this year and raised INR 50 crores of long term debt from Bank of Baroda earlier this year.

In an interview with Microfinance Focus, Mr. Gautam Doshi, the founder and CEO of Matrix spoke about the company’s participation and the future of debt financing in the robust microfinance sector. He has worked for Antfactory, a $540 million private equity fund set up by Citigroup, Allianz & JH Whitney in London. He also worked for Credit Suisse in Investment Banking in London, Indocean JP Morgan Partners.

Microfinance Focus: Can you share with us the factors that made you enter the microfinance space?

Gautam Doshi: We began working with the microfinance industry approximately two years ago as  we felt that this industry was  likely to grow significantly over the coming years and would require significant amounts of capital, both debt and equity.  We first met with Asmitha Microfin and thereafter with Share Microfin Ltd. They gave us the opportunity to help them raise debt funding. In the last financial year we raised about INR 550 crores for SHARE Microfinance across various banks and about INR 350 crores for Asmitha Microfinance. We are also working with several other microfinance companies currently and propose to close transactions for them in the coming months.

Microfinance Focus: Almost every month you are doing a debt syndication transaction for an MFI but we don’t see any equity placements. Are there any reasons behind this trend?

Gautam Doshi: Equity has not been much of a challenge for the microfinance industry. It began with SKS raising PE money and over time, that has played out very well for its investors. Thus, the industry has attracted significant amounts of PE capital. Many microfinance companies are directly being approached by PE investors so that’s not an area where we have been able to add much value. Debt on the other hand has been more of a challenge for the industry. All the microfinance institutions are growing at over 100% a year. Every time they raise 100 rupees of equity they can leverage that 5-6 times over by way of debt. So in our view, the larger opportunity remains on the debt side and that is where we have focussed our efforts.

Microfinance Focus: Are there any changes in the policies of banks in terms of lending to MFIs

Gautam Doshi: Not really. I think initially people were not aware of the industry so there was time spent on explaining the benefits of lending to microfinance companies. That stage is over now and most banks are comfortable in lending to microfinance companies. There is a bias towards lending to the larger MFIs and therefore the smaller ones continue to find it a hard to raise funding.

Microfinance Focus: What are some of the limitations MFIs are bound with while exploring various alternatives of debt financing?

Gautam Doshi: There have not been too many limitations. Banks have been getting comfortable and so MFI’s are able to access capital. They were able to grow so well because they have been able to access capital. I think the larger ones like SKS, Spandana and SHARE Microfinance are ready to tap the debt capital market by way of issuing Commercial Papers. They have already started placing NCDs.

Microfinance Focus: There is a growing concern among the industry experts that RBI may change the priority sector lending policy and microfinance sector will no longer remain a beneficiary?

Gautam Doshi: In my view nothing is going to change. I think overall, the RBI is a comfortable with the performance of the microfinance industry, so I don’t think there will be any change in removing microfinance from the priority sector limits. There have been certain instances, where people have talked about putting a cap on the lending rate, but I don’t anticipate that either. The operating cost of the industry is close to 9-10% of the total cost and they access money at roughly 11-13 % from the banks. So the total cost works out to about 21-22%, and they lend out at roughly 25-26% so I don’t anticipate RBI putting any lending caps.

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