NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, September 22, 2015

Microfinance companies that have been awarded small finance licences may need to mobilise close to Rs 2,000-crore equity between them from local investors to dilute foreign ownership. 

Getting the final licence from Reserve Bank of India would depend on how they face the trial. MFIs along with payment banks licensees are going to jostle for space to raise equity from the market in the next 18 months and that will put intense pressure on the local equity market. 

Local investors had never shown a keen interest in this sector all these years while foreign private equity players made a killing. MFIs such as Ujjivan Financial Services and Utkarsh Micro Finance have foreign holdings over 85%. The RBI says small finance banks should follow a holding company structure and a majority of the shares, at least 51%, should be owned by local promoters. 

"This is clearly going to be a challenge and one that all MFIs are well aware of. It is expected to take up a lot of management time over the next 6-9 months," said Kshama Fernandes, managing director & chief executive of IFMR Capital, which helps MFIs raise capital.