Private Equity Funds Step Up Investments in MFIs

Tuesday, July 13, 2010

Private equity (PE) investments in microfinance institutions (MFIs), which fell by 12 per cent last year (2009), have recovered this year. Between January and June this year, MFIs have attracted PE investment totalling $84 million (about Rs 386.4 crore) – an increase of a little over 15 per cent over the first half of 2009.

Industry experts say the attraction of MFIs for PE investors lies in two sets of figures – the high interest rates that MFIs charge (30-60 per cent), and high repayment rates (exceeding 95 per cent). These two sets of figures combine to make MFIs highly profitable.

This has led to an increase in the investment flow into Indian MFIs, despite the financial crisis.

PE firms have shown particular interest in investing in MFIs that are registered as non-banking finance companies. The firms typically invest in closely held companies in which they see possibilities of good returns that can be obtained through an exit strategy involving an initial public offer (IPO) or a takeover by large companies.

Source: Sify Finance (link opens in a new window)