ET : Global Investors Line up for Microfinance Pie : May 25, 2007 

GRAMEEN Bank’s success story and the growth of microfinance institutions
have captured the imagination of overseas investors of various kinds.

After SKS Microfinance and Share Microfin, Spandana and Basix are the
next set of microfinance institutions to be approached by foreign investors
willing to infuse capital. Quebec-based co-operative bank Desjardins and
Oiko Credit of the Netherlands figure among the list of investors.

What is it that brings these investors to local MFIs? It’s felt that
there is an investment gap in the Indian microfinance space, which could be
due to lack of funds coming from local sources. Since foreign investors find
the Indian rural economy far too opaque and complex, acquiring equity stakes
in existing MFIs possibly makes sense. It’s easier than setting up a new
shop.

Internationally, there are corporates, institutions and high networth
individuals who are inclined to put money in global funds aimed at promoting
sustainable development across the globe; and, these funds often invest in
MFIs of emerging economies like India.

Many of these individuals could be those with surplus funds, belonging
to the ranks of Silicon Valley-based entrepreneur Vinod Khosla.
Understandably, these investments are in no way a part of their main income
stream. It could well be a blend of social responsibility and intelligent
investment.

The Indian microfinance industry is dominated by 4-5 large MFIs, which
are fast-growing and need bigger investments. Equity happens to be the
preferred route to get funds for most non-banking finance companies
operating as MFIs; it increases their leveraging capacity, allowing them to
raise more fund through the debt route. The other option is external
commercial borrowings (or foreign loans), subject to regulatory
restrictions. Most MFIs are seen to be reporting repayment rates of 98-99%,
which overseas lenders are quite comfortable with. How does an overseas
investor evaluate an Indian MFI? It examines the MFI network in rural
pockets, the extent to which the social obligations are fulfiled, whether
the MFI has the discipline to sustain its earnings, besides the present
shareholding and the pricing of recent share transfers. It also looks at the
calibre of promoters, the management and the governance structures in place.
Such investors do expect a very high return on equity – as high as even 30%
in some cases.

Oiko Credit has an NBFC called Manaviya Investments and Holdings in
India, through which it lends to local MFIs. The company has recently
recruited an equity manager in India. The parent company is now planning to
buy a stake in Chennai-based MFI, SMILE, and a Dehradun-based low-cost
housing finance company. It’s also in preliminary talks with a
Hyderabad-based MFI for a similar purpose.

A senior official of Spandana said, “We are looking at raising funds of
around Rs 40-50 crore and are in talks with a few local private equity
funds, microfinance funds and even certain mainstream investors.” The MFI
would not dilute the current shareholding, but would issue fresh equity to
the investor. The current capital base is around Rs 40 crore, and with an
infusion of Rs 50 crore, it would go up to Rs 90 crore, Ms Reddy said.

Another large player Basix has investors like IFC Washington, US-based
Shore Capital International, Dutch fund Tridos, HDFC and ICICI Bank. It is
in talks with a Quebec-based co-operative bank, Desjardins and the Small
Industries Development Bank of India (Sidbi), a senior Basix official
informed.

Desjardins has total assets worth $1,35,126 billion and 922 service
centres. Basix plans to raise $15-20 million for the MFI and the bank within
the group. Experts feel that foreign funds entering the sector would lend it
a touch of professionalism, global exposure, new networks, higher standards
and ethics and a natural transfer of global expertise.

preeti.iyer@timesgroup.com

GO RURAL: High networth individuals are looking to park surplus money here

URL :
http://epaper.timesofindia.com/Repository/ml.asp?Ref=RVRNLzIwMDcvMDUvMjUjQXIwMTgwMA==&Mode=HTML&Locale=english-skin-custom