Soaring microfinance lures PE investors

Font Size

Print

Feedback

Email

Discuss

• Discount UK Shopping

Related Articles

Warrants to come under FDI foldInvestors hail RBI’s gold purchase moveFDI dips 54 pct in SeptemberIndia crosses $100-bn FDI mark amid crisis

Mumbai: The microfinance sector, which has doubled its outreach every year over the last five years, is seeing bigger private equity (PE) investments, as risk-wary investors rely more on rural demand than export-oriented markets.

Close on the heels of Hyderabad-based Spandana Sphoorty Financial Ltd’s deal with PE major Temasek for raising about Rs 300 crore, another firm from Hyderbad, Share Microfinance Ltd, is set to close a deal for raising about Rs 200 crore.

This year, Jan-Oct, saw about 11 PE deals worth $143 million in the microfinance institution (MFI) sector against eight deals worth $61 million in the same period last year.

The sector’s rapid growth, at a CAGR of 105% annually in the last five years, has made it attractive for PE investment. Arun Natarajan, managing director & CEO of Venture Intelligence, a research firm focused on PE deals, said, “Apart from education and logistics, microfinance is the only sector that reports consistent quarter-to-quarter growth in PE investments.”

Intellecap, a microfinance consultant, sees the scorching pace of MFI growth continuing in the years ahead. According to it, the demand for microcredit is in range of Rs 3.3 lakh crore to Rs 4.5 lakh crore, while the current outstanding of MFIs is over Rs 15,000 crore. The sector would have an outstanding of Rs 60,000 crore by 2013—nearly four times in four years.

“Lower delinquency rates, coupled with strong growth expectations, are the key attractions for PE investments in the MFI sector,” according to Sanjay Doshi, director-transaction services, KPMG India Private Ltd.

Though Temasek is yet to announce its recent deal with Spandana Sphoorty, Share Microfinance’s managing director Udaia Kumar confirmed the firm is close to sealing a PE deal. “We are in the final stages of talks with a PE investor, and hope to close the deal in a month’s time”, Udaia Kumar told FE.

Temasek was evasive on the deal. “Temasek does not comment on market speculation”, its spokesperson said.

Share Microfinance, regulated by the RBI as a non-banking financial company, gives financial and support services to rural women through its network of 5,010 staff, spread across 900 branches in 18 states.

Share, which has an outstanding of Rs 1,480 crore by September 2009, is eyeing six million clients with a loan portfolio of $600 million by 2012.