The Hindu Business Line : Microfinance institutions benefit from slowdown

Hyderabad, Nov. 23 While most corporates are reeling under the adverse impact of the global economic slowdown and domestic liquidity crunch, microfinance institutions (MFIs) seem to have a different story to tell.

Global private equity players and domestic banks are now chasing MFIs to take a stake or to extend term loans if the industry trends are any indication to go by.

“There is a realisation that MFIs are a better place to invest in, in the context of the economic slowdown in the US. Many venture capitalists are keen on investing in MFIs in India now,” Mr Udaia Kumar, Chairman and Managing Director, Share Microfin Ltd (SML), told Business Line.

SML is in the process of finalising an equity investment of Rs 250 crore from a private equity player based out of India and is likely to announce the closure of the deal shortly.

SAFE AVENUE

The reasons for the trend are many. A large clientele of MFIs in the country is now being seen as a section of society which is largely insulated from the ripples of economic slowdown. “The small ticket loans, which are generally in the range of Rs 4,000 to Rs 12,000, have become a positive aspect of MFIs now. There is little scope for defaults as these people are not too directly linked with the crisis. Further, the returns on equity are between 27 per cent and 35 per cent which is attracting the private equity investors,” Mr Kumar said.

According to Mr Vikram Akula, Chief Executive Officer of SKS Microfinance Pvt Ltd, the reason for global interest in MFIs is the “maturity” of the MFIs over the last one-and-a-half decade. “The MFIs are now being eyed for long-term investment which is safe, while also addressing social issues such as eradication of poverty,” he said.

He said even during the crisis that hit the South-East Asian economies during the late 1990s, MFIs demonstrated their strengths and crucial role in helping the poor.

SKS had received Rs 366 crore equity investment led by Boston-based Sandstone Capital recently.

The liquidity needs of big MFIs are also met by “aggressive” lending by banks. “There has been a big positive shift in the bank’s attitude towards MFIs after the implementation of the agricultural debt waiver scheme of the Government recently,” Ms G. Padmaja Reddy, Spandana Spoorthy Innovative Financial Services, said.

“As lending to MFIs can also be seen as priority sector advances, many banks, especially, the public sector banks, are coming forward to give term loans to MFIs,’ she observed.

Last week alone, both SML and Spandana received Rs 200 crore each as term loans from SIDBI, besides smaller loans from other banks.

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