Global fin giants to go micro in India

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Mar 2007
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Mumbai, March, 24 2007 - India’s growing microfinance segment may soon see the entry of global financial services giant, Morgan Stanley and the Switzerland-based Blue Orchard Finance.

Both these firms are in talks with the banking regulator Reserve Bank of India to foray into the local microfinance segment.

Indian microfinance institutions have already started looking at diversifying their avenues to raise funds as part of the effort to lower their dependence on banks especially after their experience in Andhra Pradesh. The two new entrants could look at infusing funds aggregating up to Rs 500 crore, if approvals come through.

With banks having choked off funding for microfinance firms in Andhra Pradesh, fresh inflow of capital could help ease the strain on liquidity for these firms. Morgan Stanley is a leading global financial services firm providing services in the fields of investment banking, securities, investment management, wealth management and credit services in more than 30 countries.

Blue Orchard Finance specialises in the management of microfinance investment products. The company assists banks and financial intermediaries seeking to invest in the microfinance industry by offering a comprehensive package of services.

The company conducts the initial identification and due diligence on MFIs and also monitors their activities and portfolios on a continual basis. According to industry sources, besides these two players, there are other institutions who are eyeing the Indian microfinance space. If Blue Orchard and Morgan Stanley manage to obtain regulatory approvals, it will certainly pave the way for the entry of new players.

Incidentally, markets such as Latin America and Eastern Europe have witnessed international financial institutions crowding out private lenders to the MFIs. As noted in an international paper on microfinance, the rapid growth of foreign private lending to MFIs in the past several years has led to a surprising reversal of roles between government-owned development institutions and private lenders.

International Financial Institutions are seen concentrating their loans in the strongest MFIs, leaving private lenders to look for opportunities among smaller, riskier borrowers. These institutions could only use the ECB route for bringing in funds into India while current RBI regulations prevent such lenders from pumping in more than $500 million in an year.

MFIs operating as non-governmental organisations (NGOs) are permitted access to external commercial borrowings (ECBs), that too with a prior approval from the RBI. Global financial institutions which have so far provided funds and technical assistance to domestic MFIs include Brazil-based Accion International, the Michael and Susan Dell Foundation based out of Texas, World Bank arm International Finance Corporation among others.

Source : Times News Network
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