India: Microfinance Funds Await Better Cash Flow

Jun 2009
Chennai, india, June, 04 2009 - India-focused microfinance funds, which had seen investment cycles turn longer due to the global credit crisis last year, are hoping for robust fund flows this year, following improvement in global equity markets coupled with positive domestic sentiments after a strong election mandate.

Most of the microfinance funds are dependent on foreign investors for fund flows. As a result, these funds saw their investment cycles getting prolonged as the global financial crisis had made some new mainstream investors in the microfinance space a bit wary.

Microfinance institutions are those, which provide financial services to poor or low-income clients, including consumers and the self-employed. The microfinance sector accounts for close to Rs 1,00,000 crore disbursements.

“Definitely the sentiments have improved from September last year, due to the improvement in the global economy. Main-stream investors are also turning positive on the Indian microfinance sector following the improvement in the global equity markets and political stability,” Mona Kchawa, director investments at Caspian Advisors said.

There were 11 deals worth $178 million in the microfinance sector during the financial year 2009, compared to three deals worth $52 million in 2008, according to Venture Intelligence Ltd, a Chennai-based company that tracks private investments. Private equity investments into microfinance sector in India started from January 2007.

Anal Jain, managing director of MVA Ventures, said the number of deals would have been stronger if the investment cycles were lower for the funds. Arun Natarajan, CEO of Venture Intelligence pointed out that there are two kinds of investors who put money into microfinance funds. One is the commercial investors’ who are heavily invested in the public markets and other is the charity foundations like the Dell Foundation and Microsoft Foundation.

“The fund flow from the charity foundations would improve sooner, however commercial investors’ would take a longer time to return to micro finance funds because a large extent of their portfolio is still in the negative,” he added.


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