Monthly Archives: March 2014

India MFIs’ loan portfolio rises 29% in Q4 2013

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During the quarter, microfinance institutions received funding worth Rs 3,448 crore of which Rs 2,820 crore came from banks and remaining from other FIs.

The aggregate gross loan portfolio of microfinance institutions (MFIs) rose 29 per cent to Rs 23,998 crore in the third quarter ended on December 31, 2013 against the same period a year ago, according to data compiled by industry body Microfinance Institutions Network (MFIN).

According to the data released by MFIN in the eight issue of MicroMeter on the status of the Indian microfinance industry, over 85 per cent of MFIs witnessed positive growth in the quarter over the corresponding quarter in the previous fiscal.

While loan disbursals of MFIs grew 52 per cent against the same period a year ago, total outstanding borrowing increased 44 per cent on a year-on-year basis to Rs 18,425 crore. During the quarter, the industry received funding of Rs 3,448 crore, of which Rs 2,820 crore was from banks and remaining from other financial institutions.

“The growth trajectory that the microfinance industry is exhibiting after having gone through a severe crisis is exceptional. This, more than anything else, demonstrates the customer connectedness and robustness of the business model of NBFC-MFIs. These institutions play a very important role in meeting the financial needs of the BoP segment and we endorse the RBI-CCFS Committee’s view on removal of all policy biases against them,” Alok Prasad, CEO, MFIN, said.

The analysis was based on data compiled from 43 non-banking finance companies, which are members of MFIN and constitute around 85 per cent of the microfinance business in the country (excluding SHGs).

The top four states that accounted for 62 per cent of the portfolio were West Bengal, Karnataka, Maharashtra and Andhra Pradesh.

However the performing portfolio in AP is negligible. For the first time, the number of clients in Tamil Nadu and West Bengal has superseded those in AP.

Moreover, the report provided data on insurance and pension services by NBFC-MFIs.  As on December 31, 2013, MFIs offered life insurance to over 25 million clients with total value of sum insured at Rs 38,400 crore. MFIs have opened more than 1 million pension accounts, 27 per cent of them in government sponsored Swavalamban scheme.

(Edited by Joby Puthuparampil Johnson)

India Has Millions of Female Entrepreneurs and They Need Easier Access to Money –

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A female entrepreneur at her tea shop in the western state of Maharashtra.

 Shanoor Seervai/The Wall Street Journal

While there may not be many women occupying the executive offices of India, the country is home to literally millions of female entrepreneurs, in charge of their own tiny businesses, according to estimates by the International Finance Corp.

The number of women running their own businesses in India is expanding and banks need to find more ways to serve them, said a report this week from the IFC, which is the private-sector arm of the World Bank.

Women in India fully or partially own around three million small enterprises across the country. Their businesses include everything from tea stalls and vegetable stands to laundries and cellphone shops. The women-backed businesses employ over eight million people in India, according to the IFC report.

A large majority of these budding businesses depend on informal avenues to raise money. That means that they have to turn to family members, friends and loan sharks to get the capital they need to start and expand.

The report estimates that the total financial requirement for women entrepreneurs was $158 billion in 2012 but they only had access to around $42 billion from formal lenders. Only 27% of their money needs were met through formal lending institutions such as banks, cooperatives, micro lenders and other non-banking finance companies.

Male entrepreneurs get as much as 70% of their financing from formal lenders, depending on which industry and state they operate in.

Financial institutions need to adapt to accommodate women, the IFC said.  While close to 80% of women-owned enterprises are in the service sector, most bank lending is for manufacturing. Another obstacle for women entrepreneurs is that banks often require collateral for loans, which women often don’t have here because of social, legal andcultural restrictions on inheritance and land ownership.

More than 90% of India’s 90 million plus microfinance clients are women, according to the report. But microfinance is not enough. While the tiny loans serve the needs of tiny enterprises, they are not sufficient to help women grow their businesses and generate more employment.

In November last year, the Indian government launched the country’s first state-owned bank for women, aiming to open 25 branches across the country by the end of this month.

Banks need to create new products and services for women, the IFC report said. They also need to build a more welcoming environment for women entrepreneurs and provide them non-financial services such as training.

“There is a strong case that serving women entrepreneurs makes significant business sense,” the report says, citing studies that show women often have a better track record than men at repaying loans and running profitable businesses.

Follow Shanoor and India Real Time on Twitter @shanoorseervai and @WSJIndia.

PE Investors Increase Emerging Market Investment, As Others Cash Out

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Amid slowing growth, rising interest rates and currency volatility, some $33 billion has been withdrawn from emerging market stock and bond funds this year, exceeding the $29.2 billion outflow for all of 2013. Yet annual private equity fundraising for emerging markets is running 32 percent ahead of last year, according to data compiled from Palico’s proprietary data base of more than 7,200 GPs and 12,000-plus funds.

Some $6.5 billion has been raised by emerging market PE funds this year, while the category’s share of global fundraising stands at nearly 17 percent, almost double last year’s 8.5 percent.

In general, experienced PE investors find short-term volatility appealing, so emerging markets represent a buying opportunity. This has a lot to do with the roughly ten-year investment horizon of private equity, which bridges the ups and downs of economic cycles.

More Than Half of Global GDP

Emerging markets represent a highly diverse range of countries in various stages of development, but they tend to share high long-term economic growth rates, rapidly developing middle classes and relatively low rates of PE investment. The approximately 70 countries classified as “emerging” or “frontier” by index providers account for as much as 85 percent of the world’s population and more than half of global GDP.

Frontier Market Investment Rises

Arguably the most striking recent development in emerging markets, is the rising popularity of frontier markets, where PE investment opportunities can be particularly difficult to uncover. An emerging markets subset, frontier markets are characterized by the Emerging Markets Private Equity Organization as having a relatively high degree of “underdevelopment in their legal, regulatory and public equity markets.”

Investment in the 40-odd countries commonly considered “frontier,” including nations as diverse as Argentina and Ghana, rose to 12 percent of PE-backed emerging market asset purchases in 2013, up from 6 percent the year before, notes EMPEA. The countries of Sub-Saharan Africa took the lion’s share – 39 percent of the $2.8 billion invested in frontier markets.

Financing Gap Creates Opportunity

As EMPEA puts it in their just released Frontier Markets Data Insight 2013: “Much of the investment thesis that sparked investor interest in emerging markets PE when the asset class was in its infancy in the early 2000s is part of the rationale that has propelled PE activity in frontier economies, including the exposure to a wide spectrum of companies in some of the fastest growing economies in the world and the opportunity to take advantage of a financing gap.”

In other words, the supply of capital in frontier markets remains far short of demand. That presents a big opportunity for private equity investors.

Palico GP Member Focus on Emerging & Frontier Markets

  • 41.4% – Investing In/Considering Emerging Market Investments, include Frontier Markets
    • 18% – Asian Emerging & Frontier Markets
    • 11.9% – African & Middle Eastern Emerging & Frontier Markets
    • 11.5% – Latin American Emerging & Frontier Markets
  • 15.4% – Investing In/Considering Frontier Markets

MFIs entering new phase of stability, higher profits: Care

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“This phase is expected to be characterised by a more stable regulatory environment, steady availability of funds, improving profitability with comfortable asset quality and capital adequacy and relatively lesser impact of concentration risk,” Care said in a report.

Care Ratings today said micro finance sector is entering a phase of stable regulatory environment, higher availability of credit and increased profitability. The agency believes that MFIs are slowly coming out of the damage inflicted by the Andhra Pradesh crisis of 2010. According to Care, micro-finance sector has gone through three broad phases in the past: high growth (till 2010), high volatility (2010-11), consolidation (2011-13); and is now entering the fourth phase of relative stability. “This phase is expected to be characterised by a more stable regulatory environment, steady availability of funds, improving profitability with comfortable asset quality and capital adequacy and relatively lesser impact of concentration risk,” Care said in a report. The report said although MFIs will see improvement in their credit profiles, credit ratings may not immediately show improvement as those will continue to factor in risks associated with unsecured lending, socio-political intervention, geographic concentration and operational risks related to cash based transaction. The report said that RBI recognises micro-finance sector as it achieves the objective of financial inclusion by providing access to financial services to the unbanked population of the country. “With recent introduction of NBFC MFIs guidelines and priority sector lending (PSL) status being retained, RBI has reaffirmed MFI’s role in financial inclusion,” it said. Highlighting the higher availability of funds, the report said that total debt of the MFIs has increased to Rs 11,001 crore in FY13 from Rs 6,661 crore in FY12. “The sector has also been attracting regular equity infusion from private equity investors reflecting the increasing confidence of the investors regarding growth potential in the sector,” the report said. Care said the credit profile of the MFIs has shown improvement with improving profitability as stable margins are expected from FY14 onwards on account of removal of interest rate cap and control in operating expenses. MFIs are also adequately capitalised with overall gearing increasing moderately in spite of good growth in the loan portfolio in FY13. “Overall gearing has been at comfortable levels mainly on account of equity infusion from the private equity investors post-AP crisis,” the report said. The rating agency expects, going forward, that MFIs may expand their client base and reach out to more underserved areas of the country.

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