MICROCAPITAL STORY: Private Equity Fund Inflow to Indian Microfinance Sector Grows 242% in Fiscal Year 2008-2009

Venture Intelligence, a Chennai-based company that tracks investments deals, reports that there were 11 private equity investments worth USD 178 million into the Indian microfinance sector in the fiscal year ended March 2009, a 242 percent increase versus the three deals worth USD 52 million in the 2008 fiscal year. According to the report on mydigitalfc.com, private equity investments into the Indian microfinance sector began in January 2007.

“The micro-finance sector is isolated from what is happening from the rest of the world and also the domestic down turn, as it caters to a different class of people. Since it comes under the priority-lending sector and the fact that the credit history has been good, the private equity players are interested in the segment,” chief executive officer of Venture Intelligence Arun Natrajan said. He expects both microfinance companies and microfinance enablers to see a robust flow of funds this year.

Anal Jain, managing director of MVA Ventures, a holding of MicroVentures SPA which has established a USD 50 million fund for investing in Indian microfinance institutions (MFIs), said “We are still positive on the Indian micro-finance industry. This is because the clients addressed by the segment have not been affected by the slowdown and therefore, we expect the deal flow would be robust.”

As reported in a Microcapital story, last year Hyderabad-based SKS Microfinance raised Rs 366 crore or $75 million from private equity investors in November in its fourth round of funding. Sandstone Capital, an India-focused hedge fund with $1billion capital under management led the deal, while other investors in this round include SVB India Capital and Kismet Capital.

Despite the credit crunch, Indian microfinance institutions have posted healthy growth in disbursements for 2008-09 as banks eased credit to meet their priority sector target towards the end of the year. Government regulations require commercial banks to maintain a minimum of 18 percent of their overall loan portfolio in agricultural loans so banks typically buy such loans towards the end of their fiscal year to meet these lending targets. As reported in another recent Microcapital story, Grama Vidiyal, and Madura Microfinance reported strong credit growth in 2008-2009. Grama Vidiyal’s disbursements grew 81.2 percent to USD 74.6 million from USD 41.2 million in the prior year. Madura’s disbursements grew 33 percent to USD 25.3 million from USD 18.9 million in the previous year.

Also contributing to the growth in disbursements, Indian MFIs have successfully diversified their sources of funding through securitization of their loans. There have been several Indian MFI securitization deals over the last few months, including deals done by Equitas Finance, SKS Microfinance, and Share Microfin. To read more on the recent securitization deal done by Equitas Finance read this MicroCapital story. For more information on securitizations by SKS Microfinance read this MicroCapital story. To read more about Share Microfin’s securitization deal and collaboration with Yes Bank, click here.

As reported on the MIX Market, the microfinance information clearing house, MicroVentures, established in 2007, is a private equity initiative specialized in the development of financial partnerships with MFIs. As of June 30, 2008 MicroVentures had total assets of USD 18.9 million. The MIX does not report information on Venture Intelligence.

By Laura Anderson, Research Associate

Additional Resources:

Mydigitalfc.com: PE fund inflow to micro finance sector grows 242%

Venture Intelligence: Home

Micro Ventures SPA: Home

MicroCapital Story: SKS Microfinance Raises $75.4m in Equity Capital in Transaction Led by Sandstone Capital

MicroCapital Story: Indian Microfinance Institutions Madura Microfinance and Grama Vidiyal Report Good Credit Growth in Fiscal Year 2009

MicroCapital Story: Equitas Micro Finance Gets Transaction Securitized and Rated by CRISIL, Structured and Arranged by the Institute for Financial Management and Research

MicroCapital Story: Indian SKS Microfinance Issues Bonds and Commercial Notes and Announces a $963.6m Borrowing Plan to Finance Rapid Growth

MicroCapital Story: SKS Microfinance, Share Microfin and Equitas Microfinance Collaborate with Yes Bank to Securitize a Series of Micro-Loans in India that Cumualtively Amount to USD 38.3 million