PRESS RELEASE: Intellecap and Ford Foundation Accepting Applications From Second-tier Indian Microfinance Institutions for Support in Attracting Investment

Original press release available here.

HYDERABAD, June 2 – Context: Indian microfinance is in the limelight, seen as an attractive market with high potential investment opportunities. According to Intellecap, a sample of the 60 largest MFIs in the country (according to number of clients) together reached out to close to 10 million clients in 2007 amounting to a cumulative portfolio of USD 769 million (INR 31.14 billion). Across categories, MFIs demonstrated average CAGRs of over 70%. Their operating cost ratios came down and returns and yields increased. In addition, the efficiency and profitability indicators of Indian MFIs are highly favorable when compared to those of their Asian counterparts. Availability of the right financing and building up of institutional capacities to make effective utilization of the finance will define the performance of many MFIs in the next stage of growth.

In a parallel trend, the impressive performance by the Indian MFIs has attracted the attention of many mainstream commercial investors. Intellecap identified at least 40 domestic and international players interested in equity investments in Indian MFIs. Between 2004 and 2007, the sector received an equity infusion of almost USD 43 million (INR 1.74 billion), out of which USD 38.2 million (INR 1.54 billion) flowed in during the first four months of 2007. SHARE, Spandana, SKS and GK are a few who received external equity investments. In 2008, while the interest from equity investors only seems to be growing, an emerging concern amongst sector actors is that many of these investments are focused on the large, Tier 1 MFIs. At the same time, many also highlight the lack of adequate smaller, ‘investment worthy’ MFIs in the space. Intellecap and Ford Foundation are keen to make a difference by identifying smaller, high potential MFIs to understand the investment context and investor expectations better and invest into building their capacities towards attracting more commercial equity capital into their capital structures.

This two and a half year programme “Making My MFI Investment Worthy” is positioned to identify and handhold 10 MFIs in India to prepare themselves for effectively engaging with mainstream investors and raising the required commercial capital.

Objectives: The program focuses on working with the MFI participants in helping them make their institutions ‘investment worthy’. Focus areas include:
Augment knowledge of the equity investment process, investor motivations, suitable capital and legal structure options

Assess institutional readiness of the chosen MFIs to absorb equity and pursue rapid growth
Develop a two year roadmap for each MFI identifying key interventions to make them ‘investment worthy’
Provide individualized handholding and monitoring support towards the roadmap implementation.
Identify and document learnings from the intervention and disseminate those through suitable media.

Who should apply? Intellecap would like to work with MFIs in their growth stage, but feel the need for advisory support in preparing their strategies, systems and processes towards attracting for commercial equity investments.

The first stage eligibility criteria for the program are as follows:

Have a management team that is keen on moving your organization towards scale and profitability;
Have a clear vision on the short to medium term growth
Have a loan portfolio between USD 3.75 M and USD 25 M (INR 150 million and 1 billion);
Have a for-profit legal structure (NBFC) or have plans to transform into one in the next 2 years;
Have a need for external equity in the next 2-3 years.
Do not have external equity investments already in its capital structure
Believe in ethical, transparent business operations

Application and Selection Process: Those who fulfil the above first-stage criteria can fill in this information template and send the same to Intellecap. The applications will be put through an internal evaluation process. Fifteen (15) applicants will be shortlisted from the list and the program team will conduct field visits to each of these institutions. This will be followed by a second stage evaluation post which ten (10) MFIs will be selected towards the program. The tentative timeline for the key activities is as presented below:

Tentative Date Request for applications 2nd June, 2008
Last date for receiving applications 15th June, 2008
Shortlisting of 15 applicants 20th June,2008
Field visits to shortlisted institutions 25th July, 2008
Selection of 10 program participants 30th July, 2008
Commencement of program inputs 7th August,2008

Intellecap aims to build intellectual capital dedicated to facilitating investments into socially motivated businesses and to assist these businesses in becoming more profitable and achieving greater scale through consulting and advisory inputs. Intellecap has experience in assisting banks, international NGOs and national institutions to conduct large scale country studies, including market research and surveys and analyses, project evaluations, and complex estimations for planning market entry strategies. Intellecap has been providing capital advisory and management consulting services to MFIs as well as investors, including Business planning and Financial modeling, Process optimization and standardization, Capital structuring and investment advisory, Loan Portfolio Assessments, sector studies and market research and market entry strategy. Intellecap has developed and delivered pioneering training courses on relevant strategic issues such as Capital Structuring for Microfinance and Cash flow and Treasury Management for MFIs.

SUMMARY:

A two year program launched to augment MFI capacities to attract commercial equity investments
Ten MFIs will be handheld as part of the program
Selection will be based on a well-defined evaluation process.
Applications for participation in the program to be sent in not later than June 15, 2008.
Handholding to be supplemented by training programs and research by Intellecap.
There will be fee of USD 1875 (INR 75000) per MFI for a period of 2.5 years towards services provided under this program.

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