Wednesday, January 2, 2008

What Next for Indian Microfinance?

2007 was a busy year for microfinance. We saw the first IPO- Compartamos in Mexico, a major equity deal led by a premiere Silicon Valley venture capital firm, Sequoia Capital and many smaller funding deals involving both equity and debt. MFI’s have used this capital to expand operations beyond traditional areas and to deploy a wide array of new products. MFI’s now cover 20 million clients in India.

Additionally, the ecosystem that will drive future growth continued to expand. Multiple entrants released IT solutions targeted at MFI’s in 2007 and they will continue to tailor these offerings based on specific needs.

Mainline commercial banks became much more sophisticated in their dealings with MFI’s. For most MFI’s in India, term loans from the banks are their only source of debt finance- the lifeblood of their operations. 2007 saw the first move beyond the term loan model into more sophisticated debt instruments; this is great news as it broadens MFI’s access to capital and reduces their financing costs. We will doubtless see additional and ever more exotic financing deals happen this year- a CLO? a bond issue? We can only hope.

There is significant opportunity for the first IPO in Indian Microfinance to happen this year, and with it increased acceptance into mainstream business -for both good and bad. Expect Indian MFI’s to touch 30 million clients by the end of this year and be present in far wider geographic areas, especially the northeastern states of West Bengal and Assam; these areas have been a little late in joining the fray but several MFI’s, especially Bandhan are poised to ensure the region catches up quickly. Andhra Pradesh, India’s hotbed for microfinance is now largely saturated and so many MFI’s are looking to expand to neighboring states and beyond, competition is heating up, 2008 will be a veritable land grab in microfinance. Going back to an earlier post- lets hope that in the midst of this growth MFI's are able to keep in sight their social goals.

It should be an exciting year, continue checking back as the Indian microfinance story unfolds.

In some personal news, I got my first haircut and straight razor shave in India today. I wound through the back alleys of a neighborhood bazaar to a 'Mens Beauty Parlor.' A crowd of onlookers gathered to watch the gora attempt to explain he didn't want a faux hawk, it was rather entertaining for all.

In an update to a story I mentioned last week; Pakistan looks set to delay the planned January 8th election in the wake of the assassination of Benazir Bhutto. This is an extremely contentious move as both the major opposition parties are now pressing to have elections held as planned. Violent protests are very likely, lets hope a compromise can be reached.

And lastly, the Economist has an interesting perspective on Dharavi- Asia's largest slum, check it out.


Ivy said...

New haircut huh? I wonder how you look like now.. =)

Tyler said...

unfortunately, probably didnt help much. Maybe I will engage some of the other services at the beauty parlor...