What was your idea behind setting up your first fundthe Bellwether Microfinance Fund with corpus of Rs 100 crore
Earlier in the industry, there were very few regulated micro-finance institutions (MFIs) and a host of NGOs, societies and trusts, which operated well but could not scale up. They were also concentrated in the southern markets.
We thought the industry will expand only when the number of regulated institutions improve. This called for a need to form an equity fund, which would invest with promoters and help in setting up well capitalised regulated institutions. Besides, the idea was to also equip existing regulated MFIs with much needed capital and help them foray into under penetrated markets.
Though it was a harder route to take, we felt this is the way the industry should grow. It should be properly regulated with better governance and wide spread shareholding. Thus was born our first fund, Bellwether Microfinance Fund with corpus of Rs 100 crore in 2005 and it has been fully invested now. Then, the companies in which we invested were growing and we thought there was a need to set up a larger fund which would invest not only in MFIs but in other related businesses like technology companies, housing companies and other companies in the financial inclusion space. We formed the India Financial Inclusion Fund with corpus of Rs 500 crore. Between both the funds we have 12 investments totaling Rs 200 crore and the rest would be invested in the next 2-3 years.
Should the micro-finance institutions industry go for consolidation
Recently, Crisil did a study on the top 50 MFIs and according to the report, only 15 institutions have over Rs 100 crore of assets and the remaining 35 MFIs are below Rs 100 crore. Typically, Rs 100 crore of assets translate to 1,00,000 members.
So, given the demand and the levels of penetration, I would say, there is definitely room for existing top MFIs to grow and probably for new institutions to come into the fray. When more institutions are operating, three things happenit brings down the interest rates, ideally increases penetration levels (in terms of expanding geographies) and thirdly, increases the product and service offerings. Today 98% of the MFI offering that we see is Rs 8,000 loan to be repaid in 50 weeks at 24%.
If you look at the MFI industry now, penetration has happened, price reduction is slowly happening, but the product diversification has not happened to the extent that it would benefit the industry. Only very few MFIs have expanded their product and services basket with insurance, money transfer facilities etc. We hope that competition in the market will speed up the exercise in the coming days.
Today, the penetration levels are anywhere between 12%-15%. I would probably say that nearly 8-10 million customers are being serviced by MFIs. Regulated MFIs constitute about 80% of the market. As regards consolidation, I think, we need to wait for some more time as the market has room for both regional and national players given the levels of penetration.
Have you lined up any investment proposals in the coming months
We have a strong pipeline. It would be a combination of new deals and enhancing investments in the companies where we have already made investments. Our plan is to invest about Rs 200 crore in companies where we are already partners and another Rs 200 crore in new deals in two years.
By the end of the current fiscal year, we should be signing up a new deal with investments in the range of Rs 20 crore to Rs 25 crore. It would not be a traditional MFI. 3-4 proposals are under consideration.
Would you be looking at enhancing the corpus of your funds and float more funds specifically to invest in other sectors
Right now, we have enough flexibility to do anything in financial inclusion with the amount of capital that we have. So, at the moment there are no plans to raise capital. In fact, we need to look for opportunities and invest more responsibly.
The fund looks for all options and initiatives. We have only three basic criteria which is, it has to be financially inclusive, it must show clear evidence of social benefit or social impact with the service and has to be financially viable.
Caspian Advisors is committed to invest only in companies which are in the financial inclusion or social investment space.
Are you open to diluting your holding in any of the 12 investments you have made so far
If there are opportunities we will look at selling or diluting our stake. The Bellwether fund has invested in about 7-8 companies and our holding in the entities have been anywhere between 20%-50%. In the year 2010, we might sell our stake either partially or fully in about 1-2 companies.
Our idea is not to make money. Though it would be financially right to exit from the ventures to make profit, we feel that there is still an important role for shareholders like us as the industry evolves. So, we will stay invested in companies for non financial reasons.