VCs and PEs Bet On Microfinance

Written by Patrick Fisher July 10, 2009 0 comment

CHENNAI: Venture capitalists/PE (private equity) funds are now looking at investing in micro in India. According to industry observers, around Rs 1,000 crore is expected to be invested by venture capitalists/PE funds in the Indian micro finance space (MFIs) this year. In fact, of the 50 private equity deals worth $1 billion in banking and finance in the last 18 months, MFIs alone accounted for 20 deals amounting to $200 million. There are some funds like Aavishkaar and Bellwether Microfinance Fund that primarily invest in MFIs in India.

“Apart from MFI focused funds, other venture capitalists and PE funds who consider opportunities in the space are now adding micro finance to their portfolio,” says Mona Kachhwaha, director, Bellwether.

According to Sameer Mehta, director, Atlas Advisory, “Many venture capitalists are excited about investing in this space now. Many MFIs especially south-based ones have the right professionals and processes in place.”

Early stage investors are keen to enter this space. “We are actively looking at the MFI space and if there is a suitable opportunity, we would invest in this sector,” says Harish Gandhi, executive director, Canaan Partners. The venture fund does early stage investment and primarily focuses in healthcare and technology.

“While each investor has set certain benchmarks, the IRRs (internal rate of returns, which is used to measure and compare the profitability of investments) in the MFI space is 25%-30%,” says Vineet Rai, chief executive officer, Aavishkar. The company recently pumped in equity financing of Rs 45 million into Suryoday Microfinance, a Pune-based NBFC.

Many MFIs have also demonstrated scalability of the business and also boast of a good management structure, essential elements for VC/PE funding. “Micro finance is a high growth sector and there is also a social angle to the business. Plus, investors also have an opportunity for exit,” says Arjun Muralidharan, chief executive officer, Grama Vidiyal.