New rule may bring back PE to MFI

Namrata Acharya / Kolkata August 03, 2011, 19:21 IST (Source: Business Standard)

 

A clarity in the microfinance institution (MFI) with a new Bill in place appears to have paved the way for return of private equity (PE) in the sector, almost after a year.

Over the next six months, the sector is set to absorb as much as Rs 600 crore of PE investments, according to deal makers. After a government regulation in Andhra Pradesh curbed the operations of the MFIs across the country, PE investors had been shying away from it, with the existing ones looking for an exit route. However, the draft MFI Bill presented by the government last month gave a fresh lease of life to the ailing sector, with the Reserve Bank of India slated to be its sole regulator.

West Bengal-based Bandhan is close to sealing a deal with International Finance Corporation (IFC), a member of the World Bank group, for a Rs 135 crore equity investment by the end of this month. This would be one of the biggest PE deals in the MFI space after a government regulation in Andhra Pradesh led to a crisis in the whole sector.

Chandra Shekhar Ghosh, managing director, Bandhan, confirmed that the deal would be stuck by the end of this month.

Bangalore-based Unitas Capital was working on five PE deals worth Rs 200 crore for MFIs, said Abhijit Ray, co-founder and director of Unitas Capital.

“Any industry goes through different phases, and long term investors do see opportunities in the sector. We could easily see as much as Rs 600 crore investment in the next six months,” said Ray.

Recently, Janalakshmi Financial Services, the Bangalore-based (MFI) raised Rs 65 crore from Citi Venture Capital International (CVCI). The MFI was looking at more than Rs 65 crore PE investment in the coming months, said sources.

It is not just the mid- and small-sized MFIs, which are seeking equity investment, bigger ones like SKS Microfinance are also in the fray to tap more equity.

SKS is planning to raise up to Rs 900 crore through a qualified institutional placement (QIP) of equity shares. This is in spite of the fact that the company incurred a loss — of about Rs 218.74 crore for the quarter ended June. This is the highest loss SKS has booked in a quarter.

Market players believe that with the MFI sector almost stagnating due to regulations in the last nine months, there has been a substantial demand push. Also, in rising interest rate scenario and slowdown in urban demand, MFIs are seen as a good investment option, as they mostly operate in the rural areas.

“We are planning to raise Rs 900 crore through QIP. Demand for micro loans has gone up after the crisis, and there is not much supply to cater it. Also, there is a rural buoyancy, as government spending has created good market in the rural areas,” said Dilli Raj, chief finance officer, SKS.

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Interview of K.Paul Thomas, MD, ESAF Microfinance

Watch the Interview of K.Paul Thomas, Managing Director of ESAF Microfinance

PART 1

 

PART 2

Are domestic workers mere pushovers?

• Sony V. Mathew, who is the author of this article is the Cheif Editor of ‘Lahanti’ ESAF Newsletter and Heading the Corporate Communications Department of ESAF Microfinance. He can be contacted at sony@esaf.in

 

Women domestic workers in the country were hoping for some succour under the ‘protection of women against sexual harassment at the workplace’ bill. As per the recommendations of Krishna Tirath, Union Women and Child Development Minister, it would be better if domestic workers took recourse to criminal law for redressal. Union cabinet also seems to endorse this logic, which practically refuses to see households as legitimate work sites. Sexual harassment as mentioned in the bill is dependent on the perception of the aggrieved women, which means any complaint by a domestic worker would be one person’s word or perception against another’s. For the unorganized domestic workers, home is the workplace and the bill would have offered them a legal recourse in the event of harassment, although they were covered under the Unorganized Sector Workers’ Social Security Act. State Governments can also do their bit like Tamil Nadu, which have included domestic workers under the Manual Labour Act and Andhra Pradesh, has offered them a protective cover under the legal provision for minimum wages. Instead of excluding domestic women from the bill, including a clause for punishing false or malicious complaints would have been a much better alternative.

Success Stories : For Shalini ESAF water loans proved a blessing…

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The life of Shalini Yashwant Wagde (aged 34) is another example that illustrates the positive impact microfinance can create to build a new India. Shalini, along with her husband, is engaged in the business of spices in Wadi, Maharashtra. They purchase spices in large quantities from wholesalers and sell it to retailers, after packing, in small quantities.

Before becoming an ESAF member, she was not able to concentrate fully on her work due to the lack of availability of water connection in her household. She used to collect water from the Corporation tap located 1 km away. Moreover, the availability of water in the tap was quite unpredictable, which compounded her problems. She had to walk at least thrice in a day to check the availability of water, which consumed much of her time. This in fact disturbed her routine household activities as well as her business. Sometimes, she would assign the task to her 12-year-old daughter or 9-year-old son, as she had no other option to increase the income, especially on holidays. The little children had to lug the water pots for 2 km (to and fro) and would be terribly tired; they could not even enjoy their holidays.
It was during that time that, Shalini attended the Community Mobilization Program organized by ESAF Nirmal Jeevandhara Team. As soon as she learnt the idea of water loans, she was very much motivated and was eager to get out of her plight. With the consent of her husband she joined ESAF ‘Kumkum‘ SHG. At first, she took a loan of Rs.7,000/- for installing individual water connection. Getting water at her door steps dramatically improved her fortunes. No wonder, her monthly income increased by Rs.1500/- after meeting all expenses, from Rs.5,000/ month, earlier. Shalini can now concentrate on her business, sans any tension on her household requirements…

BASIX study for UNDP refers ESAF Program

The report mentioned about the Financial Literacy program conducted by ESAF and the impact of the same.

A study on Financial Literacy among poor conducted by BASIX, for United Nations Development Program (UNDP) referred ESAF Microfinance Counseling Program recommendation for visual film show / Nukkad Natak as a methodology for scaling up financial literacy in a state like Chattisgarh. The report also mentioned about the Financial Literacy program conducted by ESAF and the impact of the same. The report mentioned about the participants improved awareness of savings and insurance and their willingness to open bank accounts and to go for insurance plans. The report also stated the participants’ suggestion on imparting information through folk arts and organizing such programs on regular intervals.

Swiss Capacity-Building Facility in Microfinance and Micro insurance

 Based on their longstanding participation in financial sector development around the world, the Swiss Agency for Development and Cooperation (SDC), Credit Suisse, FIDES|Financial Systems Development Services AG, Swiss-contact, Swiss Microfinance Holding, and Zurich Financial Services Group, forged the SCBF as a public-private development partnership (PPDP) in April, 2011. The SCBF will initially be sponsored by these founding partners who are all represented in the steering committee.
Approximately 2.7 billion people worldwide do not have access to formal financial services. Financial intermediaries face two key constraints in expanding their outreach to this segment of the population, i) Attracting, developing and maintaining skilled management and staff; ii) Mobilizing investor funding to maintain and grow their institutions. The SCBF addresses these constraints and contributes to the development of a strong and responsible microfinance industry. (source – www.indiamicrofinance.com)

 

‘Friends of Grameen’ to fight for Prof. Muhammad Yunus

 An initiative called “Friends of Grameen” was launched with an aim to promote and develop microcredit and social business, activities of Grameen Bank and its affiliates. The organization will be registered in France, at the headquarters of ADIE, a French Grameen Model microfinance institution created in 1989. One of the priorities of the initiative is to support the independence of Grameen Bank and its founder Prof. Yunus, who were awarded the Nobel Peace Prize in 2006, as they have been the target of an ongoing pressure campaign of rumors and misleading information. (source – www.microfinancefocus.com)

Microfinance is a nation building sector says K. Paul Thomas

It's education that builds knowledge, knowledge gives ideas and a sense of belonging, ideas sprout business ventures that can change lives and build a nation…

Even after 40 years of bank nationalization, the poor don’t have avenues to park their money and India boasts of a network of almost 90,000 bank branches in the country! Going by a presentation made by Dr. Subir Gokarn, Deputy Governor, RBI, during his speech on inclusive banking at the SASTRA University, Kumbakonam, 71% of Indians earning less than
Rs. 50,000 per annum have no bank accounts. At the same time, 98% of people who have income of more than Rs. 4,00,000 per annum have bank accounts. This clearly shows that being rich and using banks are co-related.
A more close observation of the statistics related to the poor shows that only 3% borrowers who earn less than Rs. 50,000 per annum have loans from banks, in fact 97% of them have borrowed from sources other than banks like moneylenders, friends and relatives. Almost 9 out of 10 heads of expenses of the poor are always unusual and beyond reasons, which do not appear significant to the bankers. Here lies the importance of microfinance, which recognizes the financial needs of the clients, by being neutral to the purpose of the clients’ needs. Irrespective of their ability to offer collaterals, social-oriented microfinance meets the needs of the clients and saves them from exorbitant interest rates charged by the usurious moneylenders. ESAF has designed loans that meet the contingency needs of the clients like funerals, illness etc. Comparing to banks, it is easy for microfinance organizations to gather local knowledge about the clients’ circumstances. Despite the circumstances, we are always spirited in serving the clients, a line of thinking, which is impossible for formally functioning banks to follow. That’s exactly the reason why ESAF has started operations in the rural areas of Maharashtra and Jharkhand, where our staff is required to cover more than 70 kms a day to serve the clients.
It’s education that builds knowledge, knowledge gives ideas and a sense of belonging, ideas sprout business ventures that can change lives and build a nation…that’s how microfinance scripts success stories across the globe…that’s what ESAF has been doing all throughout, through Income Generation Loans (for agriculture/poultry farming), Vyapar Vikas Yojana Loans (for starting small-scale businesses), Nirmal Loans (for sanitation), and Jeevandhara Loans (for water). That’s why we believe, more than anything else, microfinance is a nation building sector.