A recent article in the Business Standard, an Indian financial newspaper, recaps a few highlights of the Indian microfinance industry in the year following the enactment of the Regulation of Moneylending Act in late 2010 in the Indian state of Andhra Pradesh. The article argues that within a short period, “a whole new breed” of microfinance institutions (MFIs) has emerged. Andhra Pradesh-based MFIs SKS Microfinance, Spandana Sphoorty Financial Limited, Share Microfin Limited and Asmitha Microfin Limited reportedly constituted more than 60 percent of the Indian microfinance business in the past. However, the Andhra Pradesh crisis turned out to be a big opportunity for smaller MFIs.
Abhijit Ray, co-founder of Indian financial advisory firm Unitus Capital, reportedly said that the INR 423 crore (USD 84.3 million) invested in the Indian microfinance sector since October 2010 showed evidence of a shifting trend towards smaller MFIs. He was quoted as having said, “For any private equity investor, exposure in Andhra Pradesh is a strict no. The investors are now looking at fundamentals like strong corporate governance, operations, strong management, rather than just profitability.”
Bandhan Financial Services, Janalakshmi Financial Services and Ujjivan Financial Services are some of the Indian MFIs that have benefited from capital infusions. Alok Prasad, chief executive officer of the 46-member Microfinance Institutions Network (MFIN), was quoted as having said, “Many MFIs, including Ujjivan and Janalakshmi, have had strong promoter CEOs, resilient management teams and an undiluted mission focus. These factors have allowed them to stay ahead in the game.”
In Andhra Pradesh, MFIs continue to face challenges, as Reserve Bank of India regulations are calling for 100-percent provisions on aggregate loan instalments overdue for 180 days or more, exposing microlenders to the risk of having negative net worth. However Mathew Titus, executive director of nonprofit network Sa-Dhan, reportedly said, “The MFI industry is probably more resilient now, because it has grown working in a tough conditions. It will be the ability to grow with responsible lending practices that would define the future of the MFI industry.”
By Kristha Abores, Research Associate
Sources and Additional Resources:
[1] “A brave new world of microfinance,” http://www.business-standard.com/taketwo/news/a-brave-new-worldmicrofina…
MicroCapital.org article, January 24, 2012, “MICROCAPITAL BRIEF: Microfinance Institutions in Andhra Pradesh Request Extension to Meet New Capital Adequacy Ratios Imposed by Reserve Bank of India,” https://www.microcapital.org/microcapital-brief-microfinance-institutions…
MicroCapital.org article, October 12, 2011, “MICROCAPITAL BRIEF: Microfinance Institutions in India’s Andhra Pradesh State Seek Government, Commercial Bank Assistance in Restructuring Loans,” https://www.microcapital.org/microcapital-brief-microfinance-institutions…
MicroCapital.org article, November 15, 2010, “MICROCAPITAL BRIEF: India’s Microfinance Industry on Brink of ‘Collapse’ Due to Credit Freeze in State of Andhra Pradesh,” https://www.microcapital.org/microcapital-brief-indias-microfinance-indus…
MicroCapital.org article, June 25, 2011, “MICROCAPITAL BRIEF: Indian Microfinance Institution (MFI) Janalakshmi Raises $14m in Equity Led by Citi Venture Capital International (CVCI),” https://www.microcapital.org/microcapital-brief-indian-microfinance-insti…
MicroCapital.org article, September 15, 2011, “MICROCAPITAL BRIEF: Indian Microfinance Institution Bandhan Financial Services Raises $29m in Equity from International Finance Corporation (IFC), Arranged by Intellecap,” https://www.microcapital.org/microcapital-brief-indian-microfinance-insti…
MicroCapital.org article, February 6, 2012, “MICROCAPITAL BRIEF: Indian Microfinance Institution Ujjivan Financial Services Raises $25m in Equity from FMO, Wolfensohn, LOK, IFIF, Sequoia, Unitus, Elevar,” https://www.microcapital.org/microcapital-brief-indian-microfinance-insti…
MicroCapital Universe Profile: SKS Microfinance, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=SKS…
MicroCapital Universe Profile: Spandana Sphoorty Financial Limited, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Spa…
MicroCapital Universe Profile: Asmitha Microfin Limited, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Asm…
MicroCapital Universe Profile: Share Microfin Limited, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=SHA…
MicroCapital Universe Profile: Sa-Dhan, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Sa-…
MicroCapital Universe Profile: Bandhan Financial Services Private Limited, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Ban…
MicroCapital Universe Profile: Janalakshmi Financial Services (JFS), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Jan…
MicroCapital Universe Profile: Unitus Capital, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Uni…
MicroCapital Universe Profile: Microfinance Institutions Network (MFIN), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Microfinance+Institutions+Network+%28MFIN%29
Browse the MicroCapital Universe and add your entry to the wiki at: https://www.microcapital.org/microfinanceuniverse/
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