The Hindu Business Line : Global majors investing in micro finance institutions

Hyderabad May 22 After playing second fiddle to other financial institutions for long, micro finance institutions (MFIs) have started figuring prominently on the radar of global financial majors for investments.

The trend is catching up fast as three international financial firms had announced partnerships involving over Rs 280 crore with the MFIs during the last couple of weeks while some more firms are likely to announce the deals shortly.

"Most of the MFIs had started as small trustees and now are dealing with money in a significant manner. The growing interest of global financial institutions is a welcome sign as we cannot totally dependent on domestic bankers," Ms G. Padmaja Reddy, Managing Director, Spandana MFI, said.

Spandana, which recently tied up with Western Union, is currently in talks with a firm for partnership. "Over next couple of weeks, we are likely to announce a major investment deal," Ms Padmaja said.

Mr Vikram Akula, Chief Executive Officer, SKS Microfinance, said the trend would augur well for expansion of rural credit. "The present demand for micro credit is projected at $55 billion while disbursements by various MFIs in the country are at $5 billion. The entry of global players through MFIs will meet the credit demand in unbanked villages," he said.

Rural entrepreneurship

As the thrust is on promoting rural entrepreneurship, the increasing participation of international firms in microcredit would make a difference, he added.

According to Mr Udala Kumar, Chairman and Managing Director, SHARE Microfinance, global players were also eyeing social investment rather than mere financial investment. "In future, most of the investors would have a social commitment encompassing areas like education, health and literacy," he said.

The industry experts feel that there is more to come. "Till recent past, the MFIs were seen only by the donor agencies but now they are emerging as potential avenues for investments," Mr Robert A Annibale, Global Director of Micro Finance, Citigroup, told Business Line here recently.

"In Mexico and Bangladesh, these partnerships have graduated from extending microcredit to an array to new products such as microinsurance and no-frill accounts. The entry of global majors and subsequent increase in credit availability will also bring down interest rates as is happening in Mexico now," he observed.

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