MICROCAPITAL BRIEF: Indian Microfinance Institutions (MFIs) Receive $84m in Private Equity Investment in the First Half of 2010

Indian microfinance institutions (MFIs) have reportedly attracted private equity investment totaling INR 3.86 billion (USD 84 million) between January and June of this year – an increase of approximately 15 percent over the first half of 2009. According to unnamed “industry experts,” the increase is a result of the high profitability of the majority of Indian MFIs, brought about by the high interest rates that MFIs charge (30-60 percent per year) and high repayment rates (exceeding 95 percent).

Although this increase in private equity investment has brought about an increase in MFI lending, the high profit margins have been criticized. Some argue that the high interest rates charged are unfair. However, high repayment rates can be interpreted to suggest that access to loans is more critical to the poor than the interest rate.

Another common concern is that pressure from profit-maximizing investors to increase profits could prompt microlenders to ignore the poor. On the other hand, a more commercial orientation may allow MFIs to expand more quickly, eventually allowing them to reach a greater number of the poor.

According to Alok Mittal, the chief executive officer of SKS Microfinance – a for-profit MFI based in Mumbai, India, that is planning on holding initial public offering (IPO) at the end of the month – “What you get by financing the sector in a for-profit mode is sustainability and scale. Presumably, private equity investment also brings more efficiency to the business, as the superior operating efficiency of many of the for-profit MFIs indicates.”

By Conner Brannen, Research Assistant

Sources and Additional Resources:

Sifyfinance: “Private Equity funds step up investments in MFIs,” by T E Narasimhan, July 13, 2010: http://sify.com/finance/private-equity-funds-step-up-investments-in-mfis-news-default-khnb5ijacde.html

MICROCAPITAL BRIEF: SKS Microfinance, a Microfinance Institution (MFI) in India, Announces Intentions to Sell Shares From July 28 to July 30, July 13, 2010: https://www.microcapital.org/microcapital-brief-sks-microfinance-a-microfinance-institution-mfi-in-india-announces-intentions-to-sell-shares-from-july-28-to-july-30/

MICROCAPITAL BRIEF: Private Equity Interest in Indian Microfinance Industry is Prominent Topic at Capital Markets Conference in New Delhi Sponsored by ACCION International, Citi Foundation and EDA Rural Systems, July 8, 2010: https://www.microcapital.org/microcapital-brief-private-equity-interest-in-indian-microfinance-industry-is-prominent-topic-at-capital-markets-conference-in-new-delhi-sponsored-by-accion-international-citi-foundation-and-eda-rur/

MICROCAPITAL.ORG STORY: Indian Microfinance Sector Sees Increase in Private Equity Investments from $61m to $143m, November 10, 2009: https://www.microcapital.org/microcapitalorg-story-indian-microfinance-sector-sees-increase-in-private-equity-investments-from-61m-to-143m/

MicroCapital Universe Profile: SKS Microfinance: https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=SKS+Microfinance

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