MICROCAPITAL BRIEF: International Finance Corporation (IFC) to Invest $18m in Equitas Microfinance India, Private Equity Funds Looking to Invest in Indian Microfinance Institutions

The International Finance Corporation, a member of the World Bank Group, reportedly has proposed investing INR 1 billion (USD 18.9 million) in Equitas Microfinance India, an Indian microfinance institution (MFI).

Private equity funds are reportedly increasing their investments in Indian MFIs, looking for long-term gains. Approximately five MFIs reportedly are in the advanced stages of raising money from these funds in amounts of approximately INR 2 billion (USD 37.8 million). Investors are reportedly more confident after the Reserve Bank of India (RBI), India’s central banking authority, implemented new regulations in the microfinance sector in response to the 2010 microlending crisis in the Indian state of Andhra Pradesh. This is despite the new regulation establishing a ten percent cap on the margin between microlenders’ cost of funds and the rate they charge clients.

As of 2011, IFC has 182 member countries, total assets of USD 68.5 billion and USD 12.2 billion mobilized to 518 projects. As of 2011, Equitas reports to the Microfinance Information Exchange (MIX) assets of USD 155 million, a gross loan portfolio of USD 142 million, 1.2 million active borrowers, return on assets of 2.1 percent and return on equity of 7.22 percent.

The 191 Indian MFIs that reported 2011 data to the US-based nonprofit data provider Microfinance Information Exchange (MIX) held an aggregate loan portfolio of USD 4.3 billion disbursed to 26.5 million borrowers.

By Charlotte Newman, Research Associate

About Reserve Bank of India
Established in 1935, the Reserve Bank of India (RBI) undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies (NFBCs). The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in cases of banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. In 1979, the National Bank for Agriculture and Rural Development (NABARD) was formed at the behest of RBI to provide regulatory oversight to regional rural banks (RRBs) and to promote the development of agricultural lenders: tasks that had been the responsibility of RBI. While all microfinance institutions (MFIs) and non-banking financial companies still operate under RBI regulations, the responsibility for inspecting nonprofit MFIs, agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD. RBI maintains these responsibilities for for-profit MFIs. Although RBI was originally the parent organization of NABARD and until October 2010 held a 72.5 percent stake in the outfit, RBI owns a one-percent stake in NABARD as of 2011.

About International Finance Corporation
A member of the World Bank Group, the International Finance Corporation (IFC) offers loans, equity investments, advisory services and technical assistance to private companies with the intent of alleviating poverty and promoting open and competitive markets in developing countries. As of 2011, IFC has 182 member countries, total assets of USD 68.5 billion and USD 12.2 billion mobilized to 518 projects.

About Equitas Microfinance India
Equitas is a microfinance institution (MFI) that was created in December 2007 and is located in Chennai, India. The company provides microcredit to low-income households in India. The objective of the company is to make credit available at a reasonable cost and in a transparent manner to the underbanked population of India, as well as achieve sufficient returns on investment in order to attract capital. As of 2011, Equitas reports to the Microfinance Information Exchange (MIX) assets of USD 155 million, a gross loan portfolio of USD 142 million, 1.2 million active borrowers, return on assets of 2.1 percent and return on equity of 7.22 percent.

Sources and Additional Resources:

The Economic Times: “Private Equity Funds Woo Micro-finance Firms to Create Long-Term Value,” http://articles.economictimes.indiatimes.com/2012-10-05/news/34279685_1_firms-long-term-value-finance

MicroCapital.org story, October 4, 2012, “MICROCAPITAL BRIEF: Sonata Finance of India Raises $6m in Equity from Creation Investments, Michael and Susan Dell Foundation, Individual Investors,” https://www.microcapital.org/microcapital-brief-sonata-finance-of-india-raises-6m-in-equity-from-creation-investments-michael-and-susan-dell-foundation-individual-investors/

MicroCapital.org story, October 1, 2012, “MICROCAPITAL BRIEF: India’s Ujjivan Raises $9m in Equity from International Finance Corporation (IFC), Netherlands Development Finance Company,” https://www.microcapital.org/microcapital-brief-indias-ujjivan-raises-9m-in-equity-from-international-finance-corporation-ifc-netherlands-development-finance-company-fmo/

MicroCapital Universe Profile: Reserve Bank of India
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Reserve+Bank+of+India+%28RBI%29

MicroCapital Universe Profile: International Finance Corporation
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=International+Finance+Corporation+%28IFC%29

MicroCapital Universe Profile: Equitas Microfinance India
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Equitas+Micro+Finance+India+Private+Limited

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