Posted on December 30, 2009 - by James

Microfinance investments make 2009 a watershed year…

Dec. 30, 2009: The year 2009 may go down as the watershed year for the Indian microfinance industry. Marked by strong growth and pioneering deals the industry is riding high, growing at a rapid pace of 100%-200% year-on-year. Attracting attention from mainstream investors, the sector accounted for 40 percent of all Private Equity deals in the past 18 months. There were 11 PE deals worth $178 million during the financial year 2009, compared to three deals worth $52 million in 2008, according to Venture Intelligence.

A plethora of reasons like huge untapped rural market, lower delinquency rates, high resilience, Union Budget emphasis on rural development and a volatile world economy have made investors flock to this segment. MFIs have reported growth in outstanding portfolio at a CAGR (Cumulative Annual Growth Rate) of 80 per cent and ROE (Return on Equity) of 30 per cent between 2003 and 2008. According to the 2008 microfinance industry report by Intellecap, the current Indian MFI market is around $1.5 billion with a penetration of around 10 per cent while the overall market size is estimated to be as high as $50 billion. Even the MFIs seem to be well prepared to exploit the new opportunities and take their business through uncharted ways like experimenting with various financial instruments like non-convertible debentures (NCDs), commercial papers, IPOs mutual funds etc.

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