Monday, September 3, 2012

100% GROWTH IN THE LAST FEW YEARS

THE MICRO-FINANCE SECTOR IN INDIA HAS RECORDED MORE THAN 100% GROWTH IN THE LAST FEW YEARS AND THE GOOD RUN IS ATTRACTING FOREIGN FIRMS LIKE BLUEORCHARD FINANCE S.A., WHICH MANAGES CLOSE TO $1 BILLION IN ASSETS AND SPECIALISES IN MICRO-FINANCE. B&E’S AVNEESH SINGH TALKS TO CEO JEAN-PIERRE KLUMPP

B&E: But won’t the current micro-finance equity valuations, which are very low, restrict the entry of new private equity funds into the sector?
JPK: It’s actually difficult to say. I think the funds that have invested in MFIs have just started 2-3 years ago. However, a private equity scheme is generally for about 5-7 years or even up to 10 years. No doubt, a lot depends on investors’ expectations; but then you will only have the reality once these transactions materialise. But I have a feeling that this is good as it compels the investor to invest. If you are not bullish on your valuation, you will not attract investors. In fact, I think if you can’t go too far, you cannot find yourself a long term investor. If an MFI wants to enter say a rural area where there is no financial reach and one of the private equity investors says no because it will lower the return on equity, you lose the outreach. So you need to convince investors about the potential that this sector holds in the long run.

B&E: Who are the probable players that are building the investable MFIs of the future?
JPK: You have a top league of MFIs. I think they are natural players. The model you see is very similar and the products offered are similar as well. Sometimes, it’s the group and sometimes it’s the village to which the products are offered. The true leaders will be the ones who will be able to offer the complete range of financial products and services. Today, only deposits are a regulatory issue; but in the future, you will have to offer all the finance related services to the poor. They can borrow money for business, but they cannot save the money. So micro savings will be a big issue in the coming future. Today you have a great league of fantastic MFIs and there is enough competition to keep them on their toes all the time.

B&E: What are the risks related to private investments in micro-finance?
JPK: There are investors who do not want to stay invested for long and as such force strategic decisions on MFIs. They generally look out for short-term returns which is not good. Another risk is in case of difficulties faced by the stakeholders. Suppose if anything goes wrong and the investors are return-driven and they shut the MFI at the development stage, then the employees lose their jobs, the clients don’t have access to funds and this generally happens at the development stage. But once an MFI passes the development stage, things starts turning out much easier for all the stakeholders. 


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