Belgium-based Incofin Investment Management, a global microfinance fund, is on course to raise a Euro 100 million ($139 million) fund which would be a successor to the existing Rural Impluse Fund I, a material portion of which would be committed to India investments. The firm expects to close the commitments by the next quarter, a senior fund official told VCCircle.
“We have significant amount of commitments from investors across the globe. All the institutional investors are very keen on how we add value to microfinance institutions across the world,” said Incofin Investment Management private equity expert Aditya Bhandari, who looks at Incofin’s portfolio in India.
The microfinance-focussed fund, which has invested $4 million in India till date, is already in discussion to close a few deals with MFIs soon. In its first investment, the Belgian firm picked up a minority stake by investing Rs 8 crore in Asomi Finance Private Ltd. In late 2009, Incofin together with Luxembourg’s MicroVentures Investments and Italy’s MicroVentures SPA invested Rs 25 crore in Grameen Koota, a Bangalore-based MFI.
From the new fund, Incofin will target investing $1 million to $5 million in microfinance institutions in India. The fund will look at able management teams and at MFIs which have a rural presence. The fund is not targeting any specific geographies in India.
Bhandari said, the huge demand-supply gap and high growth rates in India make the domestic market more compelling over international markets. The domestic markets see more of group lending activity as compared to international markets which see more of individual lending activity. Also, the Indian MFI market continues to evolve with management teams tweaking the business model and deploying a lot of technology, he says.
India is already an attractive destination for global funds eyeing the microfinance space. Sample this: India Financial Inclusion Fund (IFIF), an off-shore India-focused equity fund for microfinance companies and enablers, achieved a final close of $90 million from UK’s CDC Group ($30 million), Global Microfinance Equity Fund and Switzerland’s Social Investment Services. Grassroots Capital’s global microfinance equity fund, mainly focusing the Indian microfinance sector, received investments of worth $60 million from Dutch Pension Fund PGGM. In the last quarter, India’s EXIM Bank was able to raise $100-million loan from the Asian Development Bank. The investment arm of World Bank, International Finance Corporation, also committed Rs 35 crore in Rajasthan-based NBFC, AU Financiers Pvt. Ltd.
A host of reasons like a vast untapped rural market, lower default rates, the government’s emphasis on rural development and a volatile world economy have attracted deep interest from investors into this rather insulated sector. MFIs have reported growth in outstanding portfolio at a CAGR (Cumulative Annual Growth Rate) of 80% and ROE (Return on Equity) of 30% 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% 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, commercial papers and IPO plans.
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