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

Monday, April 13, 2015

Institutional investors in the debt market are gradually gaining confidence about looking beyond traditional government and highly-rated corporate debt to bonds and other debt instruments issued by non-banking finance companies (NBFCs) and microfinance institutions (MFIs). NBFCs and MFIs are also helping create this new market, either by issuing debentures or pooling their debt assets.

Microfin sector’s growth

Amit Tripathi, Head of Fixed Income at Reliance MF, believes that the microfinance sector has come a long way since its implosion in 2010. After its regulatory overhaul (the sector is now overseen by the central bank), “in terms of capitalisation,” Tripathi said, “large MFIs are today at par with mid-sized NBFCs.”

Reliance MF had invested in microfinance firm Equitas and NBFC Ujjivan Financial Services earlier this year. UTI AMC has bought bonds in Ujjivan, while Franklin Templeton AMC has subscribed to non-convertible debentures aggregating to about ?100 crore in Equitas Finance Pvt Ltd.

Grabs big investors’ interest

IFMR Capital, promoted by IFMR Trust, is an NBFC that is helping other NBFCs and MFIs raise funds through capital market players by way of NCDs, external commercial borrowings or collateralised debt obligations.

Kshama Fernandes, founder of IFMR Capital, says that while the microfinance sector has traditionally been funded by grants and social service foundations, it has now become robust enough for large mainstream investors to invest in it.