India: Surge in Equity Revives Cash Flow to Micro-Finance Funds

Jul 2009
India, July, 21 2009 - In a clear sign of recovery, India-focussed micro-finance funds are beginning to see robust fund flows this year, following an improvement in global equity markets and the Union budget emphasis on rural development. The investment cycles of micro-finance funds had turned longer last year due to the global credit crisis.

Last week, the Netherlands-based investor company PGGM, invested $60 million in a micro-finance private equity fund managed by Grassroots Capital. Grassroots Capital’s Global Microfinance Equity Fund will invest primarily in India, Latin America and Africa.

PGGM, a privately owned investment firm, has about 75 billion ($106 billion) of assets under management. It is also interested in managing pension funds. The fund invests in public and private equity, debt markets, real estate, commodities and infrastructure markets across the globe.

Another limited partner, CDC Group, the UK government-backed fund of funds with net assets of $4 billion, recently invested $30 million in two micro-finance funds. CDC has invested $20 million in India Financial Inclusion Fund, which is managed by Caspian Advisors, and put in $15 million in Catalyst Microfinance Investors, which invests in greenfield micro-finance institutions in India, Pakistan, Nigeria and Ghana.

Most micro-finance fu-nds are dependent on foreign investors for fund flows and, as a result, they saw their investment cycles getting longer as the global financial crisis had made some new mainstream investors in the micro-finance space a bit wary.

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

“We have not seen any dramatic change in cash flow so far. But PGGM’s investment will prompt more global investors, who had been staying on the sidelines, to put money into micro-finance funds. The budget focus on both rural and urban development would also drive growth in micro finance sector,” Mona Kchawa, director investments at Caspian Advisors, said.

She said the Financial Inclusion Fund would achieve its minimum collection target of $75 million by next month.

The deal flows into the micro-finance sector has been robust so far this year.

According to data by Venture Intelligence, about five deals worth $66 million has been closed in first half of this year, when compared to just one deal worth $two million in the same period last year.

Source : mydigitalfc

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