Investor interest returning to Indian Microfinance Sector

Intellecap has closed the largest private equity transaction for a MFI in 2011 and predicts a healthy trend for the Indian microfinance  sector.

Intellecap announced this week  that it had successfully closed the largest private equity deal in the Indian Microfinance space in 2011, by raising INR 135 crore from International Finance Corporation (IFC) for MFI Bandhan Financial Services Pvt Ltd. The deal marks the single-largest exposure by the World Bank arm to India’s microfinance sector. Significantly, the Bandhan MFI deal follows on the heels of the INR 65 crore third-round funding of Bangalore-based microfinance institution Janalakshmi Financial Services Citi Venture Capital International in June this year.

intellecap bandhan microfinance

Indian Microfinance Sector 2011

These emerging trends show that investor interest is cautiously and gradually returning to the Microfinance space in India. The news comes at a good time for MFIs, many of which are struggling to re-capitalize and align their business models to the changed regulatory environment.

“In December 2010, we had predicted that investors will soon look to ride the third wave of Indian Microfinance – with the sector gradually achieving a better balance between its commercial and social bottom-lines. As the deal history in 2011 indicates, investor interest is returning to the Microfinance space, and is clearly stemming from those who have a deep understanding of the drivers and risks of this sector. They are interested in achieving an equitable balance between profit and impact. In the coming months, this will drive many client-centric innovations in the Microfinance model.” said Atreya Rayaprolu, Co-Founder, Intellecap and Vice President of the Investment Banking arm.

Sanjib Jha, Chief Financial Officer, Intellecap, who worked with Rayaprolu on the Bandhan MFI deal said, “Intellecap is also currently advising a large South India based MFI, and a North Indian mid – tier MFI on significant capital raising mandates. One of these deals will probably be bigger than the Bandhan MFI deal. The worst is behind us – the confidence in the Microfinance model is gradually getting restored.”

Intellecap is an advisory firm with expertise in underserved markets. Its investment banking arm specializes in mediating capital into socially relevant businesses. It also successfully closed a deal in the healthcare sector earlier this year by raising INR 10 Cr from Seed Fund for Jeevanti Healthcare. It has mediated growth capital into 25 socially relevant businesses. It focuses on high impact sectors like Agriculture, Rural Business, Education, Clean Energy, Healthcare, Financial Inclusion and Technology for Development.

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