Microfinance Private Equity

PE fund inflow to Indian Microfinance sector grows 242%

Even as private equity activities in India have shrunk, the deal flow into the micro-finance sector, which accounts for close to Rs 1,00,000 crore disbursements annually, has been robust with a growth of about 242 per cent in 2008-09.

There were 11 deals worth $178 million in during the financial year, compared with three deals worth $52 million in 2007-08, according to Venture Intelligence, a Chennai-based company that tracks private investments. Private equity investments into micro finance sector in India started from January 2007.

Last year saw the largest micro finance deal in the world, when 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.

“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 said that the deal flow would be robust this year and both micro-finance companies and micro-finance enablers would see flow of funds.

“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,” said Anal Jain, managing director of MVA Ventures. MVA Ventures has established a $50 million fund for investing in micro finance institutions in India.

Micro finance institutions have posted healthy growth in disbursements for 2008-09, despite the credit crunch, as banks eased credit to meet their priority sector target towards the end of the year.

Trichy-based Grama Vidiyal Microfinance (GVMFL) disbursements grew 81.2 per cent to Rs 375 crore in 2008-09 from Rs 207 crore in the comparable period last year. Chennai-based Madura Micro Finance saw its disbursements grow 33 per cent to Rs 127 crore for during the financial year from Rs 95 crore in the same period last year.

However, Jain admitted that the investment cycles have become longer due to the global credit crisis, as many of the funds raise money from abroad.


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