Microfinance finds favour with PE players

Private equity players have made investments of $230 million in the microfinance sector in the last two years and the outlook for this segment looks upbeat as it provides a refuge from the global financial market turmoil.

According to data compiled by Venture Intelligence, a research service focussed on private equity and venture capital, the microfinance sector witnessed as many as 14 deals worth $230 million during January 2007-March 2009.

“Microfinance is sufficiently insulated from the global financial downturn. Besides, this sector provides a good way for investors to diversify their portfolio at a time when the urban and manufacturing-related sectors are witnessing a slump,” Venture Intelligence Managing Director and CEO Arun Natarajan said.

Microfinance is mainly focussed on rural areas and rural India is not so much dependent on exports. “Since microfinance is also cut off from the global economic crisis, it can post positive returns,” he added.

Some of the major private equity investments during January 2007 to March 2009 include SKS Microfinance’s $75- million investment in Sandstone Capital and Share Microfin’s $27-million fund infusion in Aavishkaar Goodwell, Legatum.

Other key deals included Ujjivan Financial Services’ $21-million investment in Unitus, MAS Financial Services’ $20-million deal with ICICI Venture and FMO and Spandana’s $12.25-million infusion in JM Financial, Lok Capital.

Further there has been a surge in the number of microfinance focussed funds like the Lok Capital Group, Bellwether Microfinance Fund and Aavishkaar Goodwell, among others. These funds are dedicated to investing in the equity of Microfinance Institutions (MFIs) in India, Natarajan said.

“With the recessionary trend likely to continue for another year or so, the private equity fund inflow outlook for the microfinance sector looks promising as this sector can promise good returns even in these challenging times,” he added.

According to global consultancy firm Grant Thornton, private equity deals in January-February 2009 stood at 31 deals with a value of $0.54 billion, a dip of 81.87 per cent from a year ago period.

For the corresponding period in 2008 and 2007, there were 83 PE deals valued at $2.98 billion and 69 PE deals valued at $2.06 billion, respectively.