Equity Investment in Indian Microfinance: A Guide for Practitioners
This report documents the recent rise in equity investment in Indian microfinance, and describes the process of obtaining equity financing and working with investors.
There has been a significant increase in the asset bases of existing microfinance focused funds. Several new local microfinance-focused investment funds have also emerged in the past couple of years. The strong fundamentals of the Indian microfinance sector largely explain the large growth in equity investment and high valuations of Indian MFIs. Potential investors are, however, worried about:
- Weak governance;
- Excessive reliance on key men;
- Low quality management information systems;
- Lack of information regarding multiple borrowing.
The global financial crisis will, no doubt, slow the pace of new investments in Indian microfinance over the short to medium term. Fund managers are, however, positive about new deals in the future. Several MFIs have obtained financing through portfolio buyouts and securitization in addition to debt and equity.