Marquee Investors Exit from Indian Microfinance Companies

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Oct 2017
India, October, 16 2017 - Indian microfinance companies are losing some of the early marquee investors such as Michael and Susan Dell Foundation and Lok Capital as these investors have shifted priorities away from pure MFIs, which are also facing challenges from small finance banks and private sector banks focusing on micro lending.

Michael and Susan Dell, who established the foundation in 1999 in the US, and supported Indian microfinance institutions (MFIs) such as Janalakshmi Financial Services and Sonata Finance is looking to exit this space completely by 2019, a company executive said.

Indian MFIs came into being in the 90s and have successfully created an eco-system of delivering doorstep financial access to economically poor women over the following decade. "Philanthropic money is scarce. We have decided to exit from all microfinance companies in the next couple of years as our priorities have shifted to invest in education sector and jobs and livelihood creation," Geeta Goel, vice president for mission investing, Michael & Susan Dell Foundation, told ET.

The Foundation is in the process of offloading its investment in MFIs such as Arohan Financial Services while it has partly exited from Swadhaar FinServe last year with the current holding remaining at 7.5 per cent.

It has equity investments in Sonata Finance and Svasti Microfinance with sub-10 per cent holding.It has exited from Janalakshmi Financial Services and Ujjivan while it has supported three earlystage funds such as UnLtd and Education Catalyst Fund to accelerate the funding of mission-aligned companies in education and skill training. "We have incubated many MFIs. Now, as several other investors have come in, we have decided to stay back," she said.

The MFI practitioners, however, reckon that while strong MFIs continue to see investors' interest, raising equity remained a challenge for the small ones. According to IFMR Capital, the NBFCMFIs have raised equities worth Rs 2,300 crore in the past few months despite demonetisation shaving off their business.

"Small finance banks, which still hold a significant microfinance portfolio, may look at diversifying their businesses going forward, creating a gap in micro lending. MFIs are looking at this vacuum for growth and therefore investor interest remains intact," said Kshama Fernandes, CEO, IFMR Capital, which helps MFIs raise funds.

Lok Capital has exited from the pure MFIs while remaining invested in small finance banks such as Utkarsh. Lok Capital has identified MSME lending as the next big bet in the financial inclusion space and diversified beyond microfinance.



 

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